The Quick Read: Across Lendmire’s wholesale network, the path is to pay the PACE assessment in full and record the lien release before the line closes. A partial payoff does not remove the priority lien, and the line generally cannot be used to pay off the assessment in the usual closing sequence. Once the assessment is gone, the rental qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
- A PACE assessment is collected through the property tax bill and ranks ahead of a new second lien.
- The release must be recorded before the line closes.
- The rent test is a minimum 1.10x DSCR on a stress payment across the entire credit limit.
- A second lien reaches 70% CLTV at a 720 score or better, on lines of $50,000 to $500,000.
- The program is offered in 15 of Lendmire’s 16 licensed states, every licensed state except Tennessee.
A rental owner with a PACE line on the tax bill often faces the same obstacle. The property has equity, the rent is solid, and the new lender wants a clean title position. This piece walks through why the assessment matters, how the file is built around it, and where the general rule bends.
What Is a DSCR HELOC?
A DSCR HELOC is a revolving line of credit on a non-owner-occupied one-to-four-unit rental, qualified on the rent instead of the owner’s personal income. Through select programs, it is written as a standalone second lien behind the first mortgage the owner keeps. On a rental with no mortgage, it is a standalone first lien.
It is never closed together with a purchase. It is never a third lien. It is never a line on the owner’s own home. The LLC can stay on title (subject to lender program eligibility), with the members signing as guarantors.
The rental is reviewed on rent: no traditional personal-income documentation, W-2s or personal income calculation, subject to lender guidelines. The property’s rent has to cover the stress payment. For the full picture of how these loans work, see the complete DSCR loans guide.
Key Terms Defined
PACE assessment: A tax assessment that funds home improvements and is repaid through the property tax bill.
Super-priority lien: A claim that ranks ahead of other liens, including a mortgage recorded earlier.
DSCR: Gross monthly rent divided by the payment the lender tests.
CLTV: The first mortgage balance plus the new line, divided by property value.
Draw period: The stretch when the borrower can take money from the line.
Release: The recorded document showing the assessment has been cleared.
Why Does a PACE Assessment Sit Ahead of the New Line?
The assessment outranks the line because it is a tax obligation, not a mortgage. The CFPB’s residential PACE final rule defines a PACE transaction as home-improvement financing that results in a tax assessment on the consumer’s real property. That assessment carries lien priority like other property tax liens. Those rank ahead of mortgage liens, including ones recorded earlier.
A HELOC is recorded behind the liens already on the property. If the assessment stays, the new lender cannot hold the lien position it expects. That is the whole problem, in one sentence.
DSCR programs are not agency products, and their guidelines decide the outcome. Still, the agency stance explains the instinct. The FHFA has said that agency policies prohibit buying a mortgage where a first-lien PACE loan is attached. That is context only. The lender’s own guidelines govern a DSCR line.
Does a PACE Assessment Disqualify the Rental?
It does not disqualify the rental permanently, but it has to be resolved before closing. Across the network, the working position is pay-in-full. A partial payoff leaves the priority lien in place, so it does not help the file.
The line also generally cannot fund the payoff in the usual closing sequence. The assessment has to be cleared first, and the release recorded, before the new lien goes on. So the money for the payoff comes from the owner’s cash or from a separate refinance of the existing financing.
Think of it as two tests. Rent income removes the personal-income test. It does not remove the lien-priority and title tests. Investors sometimes assume a rent-qualified product ignores everything about the borrower’s side of the file. It ignores income. It does not ignore title.
How Underwriting Treats It, Step by Step
1. Detect the assessment. It shows up as a separate line on the property tax bill and in the preliminary title report. Look for a PACE administrator or an energy-assessment line item. Check inherited rentals and recent purchases with particular care, since the assessment may not be obvious on those files.
2. Confirm what stays with the property. The obligation runs with the property, not the owner. A sale or transfer does not make it go away, so the full balance has to be dealt with before the new line.
3. Request an official payoff early. Go to the PACE provider, not just the county tax office. Ask whether an early payoff carries a fee or minimum payment. Payoffs can take weeks to process, so ask early.
4. Pay in full and record the release. The title company confirms the assessment is off the tax roll and the release is recorded. Only then does the new line record. Subordination shows up only in limited cases. Do not plan a DSCR file around it.
5. Run the rent test. Rent is the lesser of the appraisal’s market rent and the lease, unless three months of receipts support a lease above market. The minimum is 1.10x, tested on a fully amortizing payment on the entire credit limit at a stress rate. Taxes and insurance are not part of that qualifying payment. Confirm on the file how the lender treats the first-mortgage payment on a second lien, because the lender’s own coverage calculation governs.
6. Order the valuation and title. Lines up to $400,000 use an automated valuation with a property inspection report, or a full interior appraisal. Larger lines take a full interior appraisal. Appraisal waivers are not accepted.
The assessment has to be paid in full and released before the file proceeds, so no installment should remain on the tax bill. Confirm the lender’s treatment of any open item on your file.
How Does a PACE Balance Affect Leverage?
Remove the assessment before you size the line, because the cash it takes comes out of the plan. Combined leverage on a second lien is the first mortgage balance plus the new line, divided by value, up to 70% CLTV at a 720 score or better. That ceiling does not move because the owner spent cash on a payoff.
Picture an investor with a duplex, a first mortgage the owner keeps, and a PACE balance left over from a roof and solar project. The equity story on paper looks fine. After the payoff, the owner has less cash on hand and the same 70% CLTV ceiling. Run the leverage and the rent test on the post-payoff file, not the file as it looked on the tax bill.
On a rental with no mortgage, a standalone first lien reaches 75% LTV at 740 or better and 70% from 700 to 739, on lines up to $500,000. Lines above $500,000, to $1,000,000, carry a 65% LTV ceiling. A borrower who keeps a first mortgage can only take a second lien. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Payoff may still make sense on cost alone. That is a qualitative point, not a promise that a line is cheaper.
Your Options for Clearing the Assessment
| Option | Best fit | Main catch |
|---|---|---|
| Pay cash | Owner with liquid funds | Reduces cash on hand |
| Refinance first | Owner who wants to restructure the first mortgage | Adds a separate closing step |
| Wait for it to amortize | Small remaining balance | Line stays blocked meanwhile |
| Carry it | Rarely workable | Lender generally will not lend behind it |
Sequencing matters most for an investor tapping one rental to buy another. Resolve the payoff first. It takes time, and the line cannot close together with a purchase.
Where the General Rule Breaks
Commercial PACE. C-PACE sits outside the residential treatment and outside the CFPB residential rule. Law-firm analysis from Seyfarth says C-PACE assessments carry priority similar to real estate taxes and rank ahead of existing and later mortgages. Lenders there may look at an assessment reserve or an intercreditor agreement. On a one-to-four-unit rental line, confirm the structure before you assume anything.
Secondary-lien PACE. Some programs are structured behind the mortgage. Lien position is state- and program-specific, so read the recorded documents.
Newly originated PACE. The 2024 rule adds ability-to-repay and disclosure requirements for new PACE financing. It does not change priority. Industry groups said as much in a trade press report on the rule, noting it does not change super-lien priority.
Vesting. A rental held in an LLC may need a vesting change. A DSCR cash-out refinance may fit better in some files. Lendmire’s piece on how an investment property HELOC works when the home has a PACE assessment covers the line side of that choice.
Solar liens. A property with a solar lien is outside this program. Separate that from PACE when you read the title report.
What Else Does the File Need?
The program has fixed boundaries that apply with or without PACE:
- Credit: 720 minimum on a second lien, 700 on a first lien. No 30-day late on the mortgage in the last 12 months.
- Events: 48 months since a bankruptcy, foreclosure, short sale or deed-in-lieu.
- Seasoning: A rental bought or refinanced inside the last 6 months is not eligible (that clock runs from the last note date to the new note date), and the owner must have held title for 6 months (settlement date to note date).
- Occupancy: A lease in place is required, and a two-to-four-unit property may have at most 1 vacant unit.
- Exposure: At most 5 loans or $2,500,000 per borrower with the program.
- Not eligible: rural property, condotels, row homes, leaseholds, a property listed for sale in the prior 2 months.
- No reserves and no cash to close are required, subject to underwriting.
All of this is through select programs and subject to lender guidelines.
How the Line Works After Closing
At least 80% of the line is drawn at closing, and later draws are at least $5,000. The draw period is 5 years, interest-only on the drawn balance. A 25-year fully amortizing repayment period follows, with a 30-year maturity. The rate is variable.
Plan for that step-up when you size the line.
Common Mistakes
- Treating PACE as a second mortgage. It is a tax assessment collected on the tax bill.
- Assuming the assessment disappears on a refinance. It runs with the property.
- Paying part of the balance and expecting the file to move. Only payment in full with a recorded release clears it.
- Requesting the payoff late. The payoff sets the schedule.
- Assuming the rule change fixed priority. It did not.
- Skipping the unpaid-assessment risk. Failing to pay the full tax bill, PACE included, can put the property at risk even if the mortgage is current.
Frequently Asked Questions
Does PACE block a DSCR HELOC on a rental?
It blocks the closing until the assessment is paid in full and the release is recorded. After that, the rental is reviewed on rent coverage, credit, combined leverage and title, subject to underwriting.
Can the new line pay off the PACE assessment?
Generally no, not in the usual closing sequence. The assessment outranks the new lien, so it has to be cleared first. Owners use cash or a separate refinance.
Who do I call for the payoff?
The PACE provider that administers the assessment. Ask for an official payoff letter, and ask about fees or minimum amounts on early payoff.
What if I just bought the property with PACE attached?
The assessment follows the property, so it is now your obligation. Two six-month clocks also apply: the line is not available on a rental bought or refinanced in the last 6 months, and title must have been held for 6 months.
Does the PACE balance count toward combined leverage?
Pay it off before sizing the line, and the ceiling is just the first mortgage balance plus the new line. Second liens reach 70% CLTV at a 720 score or better, subject to underwriting.
Next Step
If you are considering a home equity line on a rental property and want to see how the numbers work, Lendmire can help you compare DSCR HELOC options based on the property, the rent, the equity available, credit profile, combined leverage, and your goals. Lendmire is a broker arranging financing through select lenders in its wholesale network; this is not a commitment to lend.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. It arranges DSCR home equity lines of credit on rental property through wholesale lending partners in 15 of its 16 licensed states (every licensed state except Tennessee); each line is written on a non-owner-occupied one-to-four-unit rental and reviewed individually by the lender under the program’s credit and leverage guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. CFPB Residential PACE Final Rule
2. FHFA Statement on Certain Super-Priority Liens
3. Seyfarth Shaw on PACE lender perspectives
4. inman.com
This article is part of Lendmire’s DSCR HELOC program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get a DSCR HELOC When the Home Has a PACE Assessment? · DSCR HELOC Requirements on a Home You Just Bought and Closed On · How to Qualify for a DSCR HELOC for Investors Turned Down by a Credit Union
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.