Can You Get a Home Equity Loan Instead of a Cash-Out Refinance?

The Quick Read: It depends mainly on how the rental is titled and how much equity sits above the first mortgage, because a second lien on a rental is possible but narrower and stricter than the same product on your own home, and most investors who hold several properties end up preferring a DSCR cash-out refinance. A few specifics:

• A cash-out refinance replaces your first mortgage. A home equity loan sits behind it as a second lien.
• Through Lendmire’s wholesale network, an investment-property equity line tops out at 70% combined loan-to-value (CLTV) and $500,000.
• That line typically needs the property titled in your own name or a revocable living trust, not an LLC.
• A DSCR cash-out refinance qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
• The decision usually turns on your existing first-mortgage terms, your title, and how much cash you need.

Key Terms Defined

Six terms come up repeatedly below. Here they are in plain words.

• First lien and second lien: A first lien is the loan paid first if the property is sold or foreclosed. A second lien sits behind it and is paid only from what is left.
• CLTV (combined loan-to-value): The total of all loans on the property divided by its value. A first mortgage at 50% of value plus a second at 20% gives a 70% CLTV.
• LTV (loan-to-value): The same idea for a single loan, such as a cash-out refinance that replaces the first mortgage.
• DSCR (debt service coverage ratio): Monthly rent divided by the full monthly housing payment. That payment covers principal, interest, taxes, insurance, and any HOA dues, which together are called PITIA.
• Vesting: The legal form in which title to the property is held, such as an individual, a trust, or an LLC.
• Seasoning: The waiting period a lender wants after you buy a property before it lets you borrow against it.

What Does Each Option Do to Your Existing Mortgage?

A cash-out refinance pays off your current mortgage with a brand-new first loan that is larger. You keep the difference as cash. A home equity loan leaves your current mortgage alone and adds a separate loan behind it.

That difference shapes everything else. The federal consumer-finance agency’s guide to using home equity describes a home equity loan as a new mortgage against your property. With an existing mortgage, it is a second mortgage with its own monthly payment. The same guide notes these loans usually have a fixed structure and a shorter repayment period than a 30-year mortgage or cash-out refinance. The agency’s Ask CFPB page on loans similar to a HELOC adds that you typically borrow everything up front and repay in regular monthly payments.

That material is written for owner-occupied homes. It does not address whether a rental qualifies, which is the part investors care about.

On Lendmire’s network, the equity product for investment property is a line of credit, not a fixed lump-sum loan. It works as a standalone line in first or second lien position. You get an interest-only draw period followed by a fully amortizing repayment period, and it does not convert to a fixed structure. The investment version runs a 5-year draw and 25-year repayment, with at least 75% of the line drawn at closing.

When Can You Get a Home Equity Loan Instead of a Cash-Out Refinance?

You can when the property, the title, and the borrower all fit the second-lien lane. For rentals, that lane is narrow. Four things decide it.

1. Whether a lender writes seconds on non-owner-occupied property at all. Many do not. Lenders that do tend to ask for a stronger profile and more assets than they would on a primary home. A market survey of rental-property home equity loans reports minimum credit scores of 700 or higher and debt-to-income limits around 43%. Those are market-wide figures. On Lendmire’s network, an investment-property equity line requires a 700 minimum score, allows debt-to-income up to 50%, and is qualified on the interest-only payment calculated on the maximum draw.

2. How the property is titled. The network’s equity lines require title held by an individual or a revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title. This is the sharpest structural difference from a DSCR loan. If your rental already sits in an LLC, you either re-vest it (which can raise due-on-transfer, title-insurance, and hazard-insurance questions to check first) or you use a DSCR cash-out refinance, which can close in an LLC subject to lender program eligibility.

3. Combined leverage. Both loans count. On an investment property, the network’s ceiling is 70% CLTV for scores of 700 and up, and the line caps at $500,000. A DSCR cash-out refinance on a standard rental tops out around 75% LTV across most of the network, with about 6 months of seasoning as the common expectation. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

4. What the lender tests. A traditional second tests you: credit, debt-to-income, and combined leverage. A DSCR cash-out refinance qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.

A small number of lenders offer a rent-qualified closed-end second. It is rare, and it is not what most borrowers find when they shop for a home equity loan on a rental.

Side-by-Side: Second Lien vs. DSCR Cash-Out

Both sides carry limits. The line is capped on size, and the DSCR loan is capped on leverage. The same rental can fit one lane and miss the other.

A Worked Example: The Same Cash Need, Run Both Ways

The investor in this example wants cash and has a strong credit score. These are modeled assumptions, not market data, and they use percentages of value only.

Scenario A: a first mortgage at 50% of value. An investment-property line to 70% CLTV leaves 20 points of value available. A DSCR cash-out refinance to about 75% LTV on a standard rental leaves 25 points, before costs and any payoff adjustments. Both options release real cash, and the refinance releases more. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Scenario B: a first mortgage at 60% of value. The line leaves 10 points. The cash-out refinance leaves 15. The gap is the same five points, but it is a much bigger share of what you can pull.

What the percentages do not show. The line keeps your first mortgage untouched, which matters if that loan was written on terms you would not get today. The refinance reprices the entire balance, so it can cost more on the money you were not trying to touch.

The refinance also changes who tests the file. A line brings your personal income, credit, and debt-to-income back into the review. A DSCR cash-out looks at the rent, which is often the deciding factor for self-employed investors and owners with large portfolios.

When the Equity Line Is the Stronger Swap

A second lien tends to win in a narrow set of situations.

• Your first mortgage is well below current market terms. Replacing it gives up something you cannot easily get back.
• You need a modest amount. The line’s size cap is not a problem, and you avoid refinancing the full balance.
• The property is titled personally or in a revocable trust. Vesting is not an obstacle.
• Your credit and income are strong. You can show personal income and a debt-to-income ratio inside the limit.
• The property is a free-and-clear rental. There is no first mortgage to preserve, so the equity line can take first position.

Eligible collateral on the network’s equity lines includes single-family homes, 2-4 units, PUDs, townhomes, and condominiums, including non-warrantable condos. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural-zoned property are not offered.

When a DSCR Cash-Out Refinance Wins

The refinance is usually the stronger tool when any of these apply.

• The property sits in an LLC. Re-vesting is a hassle, and you may not want to give up the entity.
• You want more cash than the line allows. The line caps at $500,000, and a DSCR loan runs far larger.
• You do not want your personal income in the file. 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.
• You own many properties. The network limits a borrower to three equity lines, and a borrower with more than 15 financed properties is not eligible. DSCR files have no such scale problem on that front.
• You want a single payment and one lender relationship.

A coverage ratio of 1.00 is where select programs start, and stronger ratios open better pricing and leverage. Below 1.00, select lenders in the network offer a separate path, with leverage and terms adjusted. Credit floors vary: 620 exists in parts of the network, most programs want around 660, and 700 or better unlocks the strongest leverage tiers. Reserves vary by lender, leverage, loan size, and transaction type. They commonly run around 6 months of PITIA, conservative files at modest leverage under $1,500,000 can see them waived, and larger loans typically step up to about 9 months.

Clearing 1.00 is not the same as positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.

For a fuller walk through the mechanics, Lendmire’s complete DSCR loans guide covers qualification, leverage, and structure.

What About Short-Term Rentals?

A short-term rental is the hardest property type to qualify for a home equity line. No federal rule bans the setup, so lender product policy decides file by file.

A DSCR cash-out on a short-term rental typically runs to 70% LTV, and a score of 640 or better is expected. Lenders usually want about 12 months of hosting history and a 1.00 coverage floor on a refinance. 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.

Can You Stack an Equity Line Behind a DSCR First Mortgage?

Sometimes. A second behind a DSCR first works only when three conditions hold.

• The first loan’s documents allow a second lien.
• Title is in the right form, which usually means individual or revocable trust rather than LLC.
• Combined leverage fits inside the second lender’s ceiling.

That second condition is where many investors get stuck. A DSCR loan often closes in an LLC, and the equity line often cannot. Both lenders also have to accept the combined position. Lendmire’s piece Home Equity Lines for Homeowners Deciding When a Cash-Out Refinance Wins walks through that decision from the homeowner side, and weighing a refinance with cash out against a home equity loan covers the trade-off in more detail.

One more point on availability. The equity line is offered in 16 states, which is narrower than the 41-market DSCR footprint that includes Washington, D.C. Where the line is not offered, a DSCR cash-out refinance may be the only route on the network.

Risks and Trade-Offs of Two Liens

Both options are secured by the property, so a missed payment puts it at risk either way. A second lien adds two payments and two liens on one asset. The federal guide cited above makes the same point about home equity loans in general.

The line’s structure adds a wrinkle. Pricing floats across both the draw and repayment period and never converts to fixed. Stress-test the payment at the maximum draw, because that is how the lender tests it too.

What If You Are Turned Down?

Start by working out which test you missed.

• Title is the problem. Re-vest into an individual or revocable trust, or move to the DSCR cash-out refinance.
• Credit is the problem. The investment-property line starts at a 700 minimum, while DSCR files can work with lower scores in parts of the network. The strongest leverage tiers want 700 or more.
• Leverage is the problem. Look at the gap between the 70% CLTV ceiling on the line and the roughly 75% LTV on a standard-rental cash-out refinance.
• Property type is the problem. Manufactured homes, log homes, and barndominiums are not offered on DSCR loans. Co-ops, condotels, and several other types are not eligible on the equity lines. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

A larger down payment on a purchase can lower the payment and lift the coverage ratio, 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.

Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) arranging home equity lines of credit — primary-residence, second-home and investment-property lines — through a wholesale lending network in its 16 full-service states. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – Using home equity to meet financial needs

2. Ask CFPB page on loans similar to a HELOC

3. Yahoo Finance – Home equity loan on an investment or rental property