The Quick Read: Two tests set the loan, one run on appraised value and one run on the rent the property earns, and the lender funds whichever result is smaller, so the cash that reaches you is that smaller loan minus the old mortgage payoff, closing costs, and any reserves the program requires. Most investors assume the equity sets the number. Often the rent sets it instead.
- On a standard rental, cash-out leverage tops out around 75% LTV across most of the network, with about 6 months of ownership expected first.
- Rent is tested against the new, larger payment, so every extra dollar pulled lowers coverage.
- Rent used for lender review is typically the lower of the signed lease or the appraiser’s market rent.
- Payoff, costs, and reserves all come out before you see any cash.
- Clearing 1.00 coverage is a lender test. It does not mean the property cash-flows.
Key Terms Defined
Value test: The cap on the new loan as a percentage of appraised value, or of cost basis inside the seasoning window.
Rent test: The cap on the new loan set by what rent used for lender review can cover at the required coverage ratio.
PITIA: Principal, interest, taxes, insurance, and any HOA dues on the property being financed.
DSCR (coverage ratio): On residential investor programs, qualifying monthly rent divided by PITIA. A result of 1.00 means rent equals the payment.
Seasoning: The ownership period a lender expects before it will size a cash-out loan on current value.
Net proceeds: What is left after the payoff, closing costs, prepaids, and required reserves come out of the new loan.
DSCR Cash-Out Calculator
Run the cash-out numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 22, 2026
Prefilled with starting assumptions — enter your property’s value, balance, taxes, and insurance for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 22, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
What Is a Lender Actually Sizing?
The lender is sizing one number: the maximum first-lien balance the property can support. Everything else is subtraction.
A cash-out refinance replaces the existing mortgage with a new, larger one. At closing the new loan pays off the old lien, and the borrower receives the difference. That is the mechanical meaning of “home payoff” here: the old mortgage on the rental is retired out of the new loan’s proceeds. Some investors also want the leftover cash to retire a mortgage on their own residence. That second use gets its own section below.
Classification matters first. A refinance that returns cash is cash-out. A refinance that only pays off the old loan and costs is rate-and-term, which on select programs can run up to 85% LTV with no cash back at closing. Cash-out is treated more strictly, and on standard rentals it tops out around 75% LTV. On a hard-money payoff, extension fees and accrued interest can push a file from payoff-only into cash-out territory. Files that assumed payoff-only treatment are the ones that get reclassified late.
The Two Tests Behind Every Number
Every DSCR cash-out runs two ceilings at once, and the loan is the lower of the two. There is no single governing rule, because these are non-agency business-purpose loans. Each lender’s published guidelines govern, but the method is consistent across the wholesale network.
| Factor | Value test | Rent test |
|---|---|---|
| What it measures | Appraised value | rent used for lender review vs new PITIA |
| Typical limit | 75% LTV on a standard rental cash-out | Coverage at the program floor or better |
| Main input | Appraisal | Lease and appraiser’s rent schedule |
| Binds first when | Rent is strong for the price | Rent is thin for the value |
Here is the catch. The rent test runs against the new payment, not the old one. A property that comfortably covered its old mortgage can fail the rent test at a larger balance. Two investors with identical equity can walk away with different cash for exactly that reason.
Step-by-Step: How the File Gets Sized
Here is the order a reviewer works through, start to finish.
1. Classify the transaction. Payoff-only or cash-out, and whether the old loan was hard money or a bridge product.
2. Order the appraisal with a rent schedule. The appraisal sets value. The rent schedule sets market rent.
3. Set rent used for program review. Typically the lower of the signed lease or the appraiser’s market rent. A lease above market rent does not automatically raise the number. The lender may want proof of actual collection.
4. Build PITIA on the new loan. The larger balance drives principal and interest. The property’s own taxes, insurance, and HOA dues sit beside it. Nothing from your other properties enters the calculation.
5. Compute coverage. Rent divided by PITIA. Many select programs start at 1.00, and stronger ratios open better pricing and leverage.
6. Run the value ceiling. Appraised value times the cash-out cap, or the lower of cost basis and value inside the seasoning window.
7. Run the rent ceiling. Divide rent used for eligibility review by the target ratio to find the maximum total payment. Subtract taxes, insurance, and dues. What remains is the most principal and interest the file can carry, and that converts to a maximum balance.
8. Take the lower ceiling, then subtract. Payoff, closing costs, and reserves come out. The remainder is your cash.
9. Close. The title or escrow company requests the payoff and funds go straight to the old lender. The old lien is released and the new one recorded.
Most of the friction on these files sits in steps 2, 3, and 8. Rent comes in lower than the lease, or costs and reserves were never netted out of the expected check.
Worked Example: When Value Is the Limit
Say a property has a strong rent-to-value relationship and an existing mortgage equal to about half of appraised value. These are modeled assumptions, not market data.
At the 75% cash-out ceiling, the new loan is three-quarters of value. Run the rent test on that balance and coverage lands around 1.3x, above the 1.00 start point many select programs use. The value test binds. The rent test has room to spare. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Gross cash before costs is roughly the gap between 75% and 50% of value, about a quarter of the property’s worth. Closing costs and reserves then reduce it. Here the investor can pull to the cap, and the appraisal is the number to protect.
Worked Example: When Rent Is the Limit
Now take a property with the same value and the same half-of-value payoff, but thinner rent relative to price.
At the 75% ceiling, coverage on the new payment would land near 0.9x. The value test says yes. The rent test says no. A lender working from the 1.00 start point has to shrink the loan until coverage clears, so the file sizes down to a balance meaningfully below the value cap. The investor has the same equity as in the first example and noticeably less cash.
Coverage below 1.00 is not a dead end, but it is a different path. 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Qualification stays subject to lender guidelines, credit approval, and property review.
How Coverage Shifts as the Draw Grows
The table shows one illustrative property with a payoff near half of value. The coverage figures are modeled approximations, not quotes.
| Draw size | New LTV | Cash before costs | Coverage (approx.) |
|---|---|---|---|
| Small | 55% | About 5% of value | Around 1.4x |
| Moderate | 65% | About 15% of value | Around 1.2x |
| Maximum | 75% | About 25% of value | Around 1.05x |
Look at the bottom row. The maximum draw barely clears the line. A modest appraisal miss or a rent schedule a bit under the lease pushes it below. Pulling less is sometimes the stronger play, because it keeps the file away from the edge and leaves more room for stronger pricing tiers.
Which Value and Which Rent Does the Lender Use?
Appraised value governs once seasoning is met. Inside the window, many lenders size on the lower of cost basis or appraised value. Cost basis is purchase price plus documented improvements. Across the network, about 6 months of ownership, measured from title recording, is the common expectation for cash-out.
That has a practical effect. Proceeds track documented cost, not a post-rehab value you hope to see. An investor who bought, renovated, and wants to pull to the new value inside the window often finds the loan sized to cost instead.
For rent, the appraiser’s schedule is the anchor. Fannie Mae’s Form 1007 is the single-family comparable rent schedule. The appraiser prepares it as an attachment to the appraisal of a single-family investment property, builds it on three comparable rentals, and ends with a reconciled monthly market rent. The form is not a DSCR rule. It is simply the tool most appraisers use. HUD also calls for a 1007 showing fair market rent on one-unit proposed rental income, which shows how widely the form is used.
Two units, three units, or four? The appraisal uses a small residential income report (Form 1025), and all unit rents are divided by one building payment.
From Gross Loan to Net Cash
Net cash is what survives a short waterfall.
- Start with the loan, the lower of the two ceilings.
- Subtract the payoff of the existing mortgage, including accrued interest and any fees on the old loan.
- Subtract closing costs if they are deducted from proceeds. Costs can also be paid in cash or rolled into the balance, and rolling them in uses up room under the LTV cap.
- Subtract prepaids and any required reserves. Reserves vary by lender, leverage, and loan size. They commonly run around 6 months of PITIA, and loans above $1,500,000 typically step up to about 9 months. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived.
- Add back the old servicer’s escrow refund, which arrives after payoff and can offset new prepaids.
Reserves documentation is where files stall. Asset statements have to match the account holder, and funds moved in late draw questions. Have two months of statements ready before the file goes in.
Using the Proceeds to Pay Off a Home Mortgage
The cash is yours once the loan funds, and many investors use part of it to retire the mortgage on their own residence. The mechanics are simple. The numbers are not free.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The loan is still secured by and qualified on the rental. Your home does not enter the sizing, and paying it off does not change how the rental is tested. Lender policy on use of funds varies by program, so raise the plan with your loan officer before the file goes in rather than after.
Three effects deserve a look before you commit.
First, the rental carries a larger balance. Coverage is retested on the new payment, as shown above. Second, the cash leaves your reserves unless you plan for it. Reserves are required on the rental file and are generally not available to spend. Third, the payoff on your home is a personal decision with a different cost picture.
| Factor | Rental cash-out to pay off home | Refinancing the home directly |
|---|---|---|
| Collateral | The rental | The home |
| Qualification | Property rent vs PITIA | Owner-occupied review |
| Effect on rental | Larger balance, lower coverage | None |
| Effect on home | Lien retired | Lien replaced |
Neither route is automatically better. The stronger play depends on how much coverage the rental can spare, and on what the home loan costs you today. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Where the General Rule Breaks
Hard-money and bridge payoffs. A payoff-only refinance can fit when cost basis supports the payoff. The catch is the clock. Extension fees and accrued interest keep growing the payoff while the borrower waits, so the takeout can fall short or leave cash due at closing.
Delayed financing is an agency concept. Fannie Mae’s cash-out guide requires an arm’s-length purchase and allows the original buyer to be a person, an eligible trust, or an LLC or partnership the borrower owns 100%. DSCR programs set their own rules. The idea carries over loosely, and a hard-money or bridge purchase generally fails the no-purchase-financing test because the property carried a lien from day one.
Short-term rentals. The 1007 documents monthly market rent. It is not built to estimate a nightly rate, and multiplying a nightly rate by 30 is not a valid conversion. Short-term-rental collateral typically gets a lower ceiling: cash-out around 70% LTV, against 75% on a standard rental cash-out. Expect a 640+ score and about 12 months of hosting history. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
LLC vesting. Loans to LLC-titled borrowers are available subject to lender program eligibility. Entity documents and guarantor details are a common gap, so confirm operating agreements and ownership percentages early.
Property types. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs.
Why the Number Comes In Lower Than Expected
Troubleshooting a smaller check usually comes down to a short list.
- A low appraisal. The value test shrinks directly. An appraisal reconsideration with recent in-neighborhood sales and condition adjustments is a routine step.
- A low rent schedule. The rent test binds, even when the lease is higher.
- A large payoff. Accrued interest and fees on the old loan eat the gap.
- Seasoning and cost basis. Inside the window, the value used may be cost, not appraisal.
- Credit tier. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers.
- Reserves. Money you must hold back is money you cannot spend.
- Financed costs. Rolling costs into the balance cuts the cash and the coverage together.
A larger down payment lowers the payment and can lift coverage, but it never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Rule or Lender Policy?
| Item | Fixed by the file | Varies by lender and program |
|---|---|---|
| Transaction type | Cash-out vs payoff-only | Treatment of fees on old loan |
| Rent | Appraiser’s schedule | Lease vs market rent choice |
| Seasoning | Measured from title recording | Window length and value basis |
| Reserves | Required on the file | Months, by size and leverage |
| Loan size | Up to $3,000,000 standard | Smaller balances via select lenders |
Above $2,500,000 the network generally holds to 30-year fixed structures. Extended terms and interest-only periods are available through select lenders in the network, and ARM structures exist for investors who want them. Details are subject to lender guidelines and change over time.
What the Decision Looks Like in Practice
Start from the rent, not the equity. Estimate coverage on the larger balance, then decide how much to pull. Pulling to the cap is not required, and a smaller draw often buys a cleaner file.
Keep the second half of the math honest too. A 1.00 or better coverage ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside the calculation, so clearing the line is a lender test, not positive cash flow. On residential programs the formula is gross rent over PITIA, which differs from the commercial version built on net operating income. Mixing the two produces the wrong expectations, as does any calculator that leaves out taxes and insurance.
Lendmire’s complete DSCR loans guide covers the program basics. For a comparison on the agency side, see Lendmire’s piece How a Lender Sizes a Conventional Cash-Out Refinance on a Second Home. And once the loan funds, the next step is how the old lender releases your title after a payoff.
Frequently Asked Questions
Can I use a rental cash-out to pay off my own home?
Often yes, since the loan is a business-purpose loan secured by the rental and the cash is yours after closing. Use-of-funds policy varies by program, so raise it with your loan officer up front. The rental’s coverage is retested on the larger balance, and reserves stay in place.
Is the loan sized on value or on rent?
Both, and the lender funds the smaller result. Value caps the loan at a percentage of appraised value, around 75% LTV on a standard rental cash-out. Rent caps it at what rent used for the lender’s review can cover at the required ratio. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Why is my cash lower than my equity suggests?
Payoff, closing costs, prepaids, and reserves all come out first, and the rent test may bind before the value test. A low appraisal or a market rent below your lease also shrinks the loan. Equity is a ceiling, not a check.
How long must I own the property before a cash-out?
About 6 months is the common expectation across the network, measured from title recording. Inside that window many lenders size on the lower of cost basis or appraised value.
Does paying off a bridge or hard-money loan count as cash-out?
Sometimes. A payoff-only refinance can fit when cost basis supports the payoff, but extension fees and accrued interest can tip the file into cash-out classification. Ask for the payoff statement early to see which side you land on.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Programs change, and every file is underwritten individually; nothing here is a commitment to lend.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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References
1. Fannie Mae Form 1007, Single-Family Comparable Rent Schedule
2. HUD Mortgagee Letter 2023-17
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Rental Cash-Out Refinance Break-Even Documentation for Investors · Credit Score Requirements for an Investor Cash-Out Refinance on a Rental · Co-Owner Buyout Cash-Out Refinance Requirements on a Rental
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.