The Quick Read: The best program for your situation depends on how much of the property is leased, what rent evidence you can show, and how much cash you pull, because a hard money lender reviews the asset and the exit plan while a long-term rental lender reviews rent against the monthly payment. Vacancy rarely decides a hard money approval, but it often decides whether the exit refinance works. Coverage on a rental loan is also not the same thing as cash flow.
- Hard money cash-out on a 1-4 unit non-owner-occupied rental typically runs up to 65% of value, with 6-18 month interest-only terms. Details vary by lender, property, and experience.
- Vacancy enters a long-term rental loan through the rent figure the lender uses, not through a line item.
- Most programs use the lower of the appraiser’s market rent and the signed lease.
- A larger cash draw raises the payment and thins coverage, so size the cash-out with a vacancy buffer.
- Clearing 1.00 coverage does not mean the property cash-flows, since repairs, vacancy, management, and capex sit outside the ratio.
What “Hard Money Cash-Out Refinance” Actually Means
The phrase covers two different transactions. Investors mix them up, and the vacancy question changes depending on which one they have.
The first is a hard money loan that returns cash against a property you already own. The lender sizes it on the asset, the plan, and the exit. Across the wholesale network, cash-out and rate-and-term refinances on this product typically top out at about 65% of value. Terms run 6-18 months, interest-only, with no prepayment penalty. Loan amounts go up to $5,000,000, and larger by exception. Credit starts at a 620 minimum, with added conditions below 660. All of this varies by lender, property, and experience, and none of it is a commitment to lend.
The second is a refinance out of a hard money bridge into long-term financing. That payoff counts as a cash-out refinance, because the new loan retires a recent short-term lien. Many investors run both products in sequence. Hard money carries the acquisition and rehab, then a long-term rental loan takes over once rents are proven. Lendmire brokers that path, and it is the one place vacancy matters most.
Why Vacancy Barely Touches the Hard Money Side
Hard money is asset-based. The lender looks at the property, the business plan, and how you will get out of the loan. It does not divide rent by a payment.
That means a vacant or half-empty building can still be eligible for a hard money cash-out. Eligibility is not the whole picture, though. The loan is interest-only and short, and vacancy leaves you carrying the payment out of pocket. The real risk is the maturity date. If the note comes due while the property is still empty, you need a plan that does not depend on rent you do not yet have.
Hard money collateral is non-owner-occupied residential, 1-4 units. Commercial, land, and owner-occupied properties are not on the program sheet.
How a Long-Term Rental Lender Counts Vacancy
Vacancy shows up in the exit loan through the rent figure. A rental lender divides rent by the full monthly obligation, meaning principal, interest, taxes, insurance, and any association dues (PITIA). The question is which rent goes in the top of that fraction.
On most files the answer follows a short ladder:
1. Leased property. The lender compares the signed lease to the appraiser’s market rent and usually defaults to the lower figure.
2. Vacant property. The appraiser’s market rent stands in for the lease. The rent schedule replaces tenant income.
3. Program with a vacancy haircut. A few programs multiply gross rent by one minus a vacancy percentage before dividing.
4. Program with no haircut. Others use rent at face value and lean on coverage minimums and reserves instead.
Industry practice has no single vacancy factor. A Scotsman Guide piece on commercial lending describes assumed vacancy ranging from 3% to 10%, with about 5% as a common residential norm. That is a commercial-lending concept, not a rule for rental loans, but it explains why two lenders can reach different ratios on the same building. The mechanics of a haircut are covered in more depth in Lendmire’s piece Best DSCR Cash-Out Refinance Program With Vacancy Cutting Into the Rental Income.
Here is the arithmetic. A file that shows about 1.20 coverage at full rent falls to roughly 1.12 after a 7% vacancy haircut. If a program starts at 1.00, that file still clears. A file that sat near 1.05 would not.
The Appraisal and Rent Schedule
Rent opinions come from the appraisal. Lenders in this space borrow forms from the agency world to document market rent, even though rental loans are not agency products. Form 1007 is the single-family comparable rent schedule. The Fannie Mae Selling Guide lists Form 1007 alongside Form 1025, which covers small residential income properties of two to four units. The Freddie Mac version of the form includes a comment area for the appraiser’s view of vacancy and rent trends.
Two points matter to the file. First, the refinance lender’s own appraisal sets the loan size, not your projected after-repair value. Second, if the appraisal comes in light, payoff of the existing note, exit costs, and accrued fees come out before you see any cash.
Match Your Vacancy Situation to a Route
No single program fits every vacancy pattern. This table maps the common situations to the route that usually fits and the first move to make. Each route remains subject to lender guidelines and property review.
| Your situation | Likely route | First move |
|---|---|---|
| Fully vacant, rehab done | Hard money cash-out, then lease up | Get rent evidence and a leasing plan |
| Vacant, note maturing soon | Lease first, or ask about extension | Talk to the lender before maturity |
| Between tenants | Long-term rental loan on market rent | Order the appraisal with rent schedule |
| One unit empty in a 2-4 unit | Long-term loan on lower of lease and market rent | Collect leases for occupied units |
| Occupied but not paying | Fix collections before applying | Document payment history |
| Seasonal or short-term rental | Short-term rental program | Gather platform data and hosting history |
A few of these deserve more detail.
Between tenants. A vacant rental that is ready to rent can often be reviewed on appraiser market rent. Seasoning and vacancy are separate tests. A property can be vacant and fully seasoned, or leased and still inside a seasoning window.
Occupied but not paying. This is economic vacancy. Underwriting follows the documents, so the lender may see strong coverage on a property that is not paying you. Do not let paper coverage push you into a larger cash draw than the property can carry.
Short-term rentals. Nightly income does not fit a monthly rent schedule. Select programs run on platform data and about 12 months of hosting history. Short-term rental cash-out is capped at 70%, with a 640+ score expected and a 1.00 coverage floor on refinances. 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.
Hard Money Versus Long-Term Rental Financing When Income Is Thin
Both products can pull cash out of a rental. They answer different questions.
| Factor | Hard money cash-out | DSCR cash-out refinance |
|---|---|---|
| What the lender reviews | Asset, plan, exit | Rent against PITIA |
| Typical leverage | Up to 65% of value | About 75% on standard rentals |
| Term | 6-18 months, interest-only | Long-term, 30-year fixed spine |
| Vacancy matters | Mostly at the exit | Through the rent figure |
| Seasoning | Varies by lender | About 6 months is common |
Notice what the table says about leverage. The long-term rental loan can return more cash against the same value, but only if the rent supports the payment. Hard money returns less against value, but it does not ask the property to cover a payment first. A property that is empty and needs weeks of leasing work often belongs in the left column. A property that is stable and leased belongs in the right.
Conventional bank financing is a third path. It generally counts the borrower’s personal income and adds its own vacancy and expense factors, so it fits a different borrower profile and is not covered here.
What Coverage Does Not Tell You
This is where files go wrong. Rent divided by PITIA is a financing test. It is not a profit measure.
Coverage ignores repairs, vacancy, management fees, utilities, and capital expenses. A property can clear 1.00 and still lose money each month. Lendmire’s complete DSCR loans guide walks through how the ratio is built, and the key point for this topic is simple: build your own cash-flow sheet beside the lender’s ratio.
A basic stress test works in four steps.
1. Start with the rent the lender will count, which is the lower of the lease and the appraiser’s market rent.
2. Subtract your own vacancy allowance, whether or not the lender applies one.
3. Subtract management, repairs, utilities, and a capex set-aside.
4. Compare what is left to the full monthly obligation on the new loan.
If step four comes out thin, a smaller cash draw usually fixes the problem better than hoping the unit leases fast.
Sizing the Cash-Out When Vacancy Is Likely
A bigger cash draw raises the new payment and lowers coverage. Every file is tested against two caps at once. The first is a value cap, which is appraised value times the maximum leverage for the program. The second is a coverage cap, which is the largest payment the rent can support. A file can pass the first and fail the second.
On a long-term rental loan the cash-out ceiling on standard rentals is about 75%, and the 70% ceiling applies only to short-term-rental collateral. Many files land below the ceiling because rent runs out before value does. When vacancy is likely, take less than the ceiling allows. Leave room so that a haircut or a soft lease-up does not push the ratio under a program’s floor.
Programs differ on that floor. About 1.00 is where select programs start. A separate select-lender path goes below 1.00 coverage, with leverage and terms adjusted. Higher ratios generally open better pricing and leverage. Credit also matters: a 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers.
Reserves vary by lender, leverage, loan size, and transaction type. About 6 months of PITIA is common, conservative files at modest leverage under $1,500,000 can see reserves waived, and larger loans typically step up to about 9 months. Reserves documentation is one of the quiet friction points on vacancy files, because a thin reserve account plus thin rent is the combination reviewers hesitate over.
A larger down payment or lower leverage lowers the payment and can lift coverage. It does not erase credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rent.
Paying Off the Hard Money Lien
The payoff mechanics catch investors who sized their expectations on projected value.
- Payoff statement. Get a current statement that includes accrued interest and any fees owed. The refinance has to cover that number first.
- New appraisal. The refinance appraisal sizes the loan. If the bridge was funded near its leverage cap, the new value has to come in above your original after-repair estimate just to cover the payoff.
- Cash-out classification. A refinance that retires a recent hard money loan generally counts as cash-out, not rate-and-term. That means cash-out leverage applies and seasoning rules come into play. About 6 months of seasoning is the common expectation on a long-term cash-out.
- Payoff-only structures. A refinance that returns nothing to the borrower can avoid some cash-out limits, depending on the program.
Hard money has no multi-year option on the current program. Investors who need longer runway refinance into long-term rental financing, which is the exit most files are built around.
If the Note Matures Before the Property Is Rented
This is the pressure point on vacancy files. Terms run 6-18 months, and a slow lease-up eats the runway.
You have four realistic options, and each depends on the lender and the file.
1. Lease first. A signed lease gives the exit lender a number to work with. It also lets the lender compare lease and market rent.
2. Refinance on market rent. If the property is rent-ready, some programs accept vacancy and use the appraiser’s rent. Seasoning still applies.
3. Ask about an extension. Extension terms vary by lender and are not guaranteed, so raise the question well before maturity.
4. Pay down or hold. If neither of the first two works, a smaller cash-out or a payoff-only refinance may fit better than forcing a large draw.
Do not sign a below-market lease just to show a tenant. The lender will usually default to the lower of the lease and market rent, so a cheap lease can drag the ratio down for the life of the loan.
Key Terms Defined
PITIA: The full monthly obligation, made of principal, interest, taxes, insurance, and association dues.
Coverage ratio (DSCR): Monthly rent divided by PITIA, used by rental lenders to test whether the property can carry its own payment.
Seasoning: The minimum time you must own a property before a lender will allow cash-out against it.
Cash-out refinance: A new loan that pays off the old one and returns the leftover equity to the borrower.
Physical vacancy: The unit is empty.
Economic vacancy: The unit is leased but the rent is not being paid.
Loan-to-cost: The loan as a share of project cost, used for hard money purchase and rehab loans rather than cash-out refinances.
Questions to Ask Any Lender or Broker
The right program depends on how each lender handles the following. A broker that shops several wholesale lenders can match the answers to your file.
- Does the program accept a vacant property at refinance, and does it require a lease first?
- Does it apply a vacancy haircut to rent, or use market rent at face value?
- Does it use the lower of lease and market rent?
- How does it measure seasoning on a refinance out of a bridge loan?
- How does leverage adjust if coverage is thin?
- Are by-the-room or student-housing configurations accepted at all?
That last one matters. By-the-room rentals are not accepted by many lenders. Manufactured homes, log homes, and barndominiums are not offered in the network at all.
When Not to Cash Out
Skip the cash-out if the property is unleased and the rent is unproven. A smaller loan or a payoff-only refinance may serve you better. Skip it if the draw would push coverage to the edge of a program floor with no buffer. Skip it if your reserve account is thin and the only way to carry the payment is new cash from the same loan.
Cash-out is also a poor fit when the property is mid-repair or inside a seasoning window. A hard money loan can hold the position at lower leverage, then you refinance once the rent is documented. That is a patient plan, and it often beats a rushed draw.
Frequently Asked Questions
Can I get a hard money cash-out refinance on a vacant rental?
Often yes, because hard money reviews the asset, the plan, and the exit rather than tenant income. Eligibility still depends on the lender, property, and your experience. The harder question is the exit, since a long-term rental lender will need a market rent figure or a lease.
What happens to my coverage ratio if one unit in a small multifamily is empty?
The lender uses the lower of the signed leases and the appraiser’s market rent. An empty unit is usually valued at market rent from the rent schedule, so coverage may hold up better than actual cash flow does. Your own cash flow will be lower than the ratio suggests.
Does a vacancy haircut apply on every rental loan?
No. Some programs reduce gross rent by a vacancy percentage and others use rent at face value. Compare the method before you compare the stated minimum, because two lenders can reach different ratios on the same building.
Can coverage fall below 1.00 and still work?
Sometimes. About 1.00 is where select programs start, and a separate path is available through select lenders in the network, with leverage and terms adjusted. Qualification stays subject to lender guidelines, credit approval, and property review.
Does passing the coverage test mean the property cash-flows?
No. The ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex are outside it, so run your own cash-flow analysis alongside the lender’s number.
Next Step
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Lendmire is a mortgage broker that arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. For investors whose exit is a permanent loan, Lendmire’s piece Best Short-Term Rental Cash-Out Refinance Program to Pay Off a Hard Money Loan covers the short-term rental side of that exit.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s tax returns, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Scotsman Guide: Not An Exact Science
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Top Hard Money Cash-Out Refinance Providers to Tap Equity From a Rental Property · DSCR vs. Conventional Cash-Out Refinance for a St. Charles MO Rental · Short-Term Rental Cash-Out Refinance Requirements When Your Mortgage Is Almost Paid Off
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.