Bank Statement HELOC vs Cash-Out Refinance When the Home Has a PACE Assessment

The Quick Read: A bank statement HELOC fits the borrower who wants to keep the existing first mortgage and add a line behind it using deposit-based income, while a cash-out refinance fits the investor whose rent covers the new loan and who can use the proceeds to clear the PACE balance in one closing. Both products sit behind the PACE lien, so the assessment shapes the choice more than the product label does.

• A PACE assessment is repaid through the property tax bill and ranks ahead of mortgage-type liens, so it must be planned for under either product.
• The HELOC tests personal deposits and must be titled to an individual or revocable trust. The cash-out tests the property’s rent and can be vested in an LLC.
• On this network, an investment-property line tops out at 70% CLTV. A cash-out on a standard rental tops out around 75% LTV.
• The PACE payoff reduces usable equity under either route, so the net proceeds estimate starts after that payoff.

The Honest Answer on Who Each Option Is For

The bank statement HELOC is for the self-employed owner whose tax returns understate cash flow, who holds the home personally, and who already has a first mortgage worth keeping. The cash-out refinance is for the investor whose rental income carries the loan, who may hold title in an LLC, and who is happy to replace the first mortgage and settle the PACE balance from the proceeds.

Neither one removes the assessment. PACE stays attached to the property until it is paid in full and a release is recorded. That makes equity, not income documentation, the first filter. An investor with thin equity after the payoff will find both products tight, and the better move may be to pay the assessment down first or wait.

Side-by-Side

The HELOC column reflects the line parameters across Lendmire’s wholesale network. The documentation row for the bank statement HELOC reflects published industry norms, which vary by program. All figures are subject to lender guidelines and full file review.

Two cells deserve a second look. The line’s 90% CLTV ceiling applies only to primary residences and second homes, and only at a 720 credit profile. It never applies to an investment property. And the line is a variable-pricing product on both draw structures, so the cost picture belongs in a calculator, not in a table row.

How a PACE Lien Changes Both Products

PACE financing pays for energy or resilience upgrades and is repaid as an assessment on the property. It is not a mortgage. A PACE provider’s FAQ describes it as an assessment, and it says most mortgage lenders require full payoff of the remaining obligation as a condition of a refinance or sale.

The reason is lien priority. The federal consumer-finance regulator’s final PACE rule defines PACE as financing that results in a tax assessment on the consumer’s real property, and it notes that these liens take priority over pre-existing mortgage liens. Consumer Finance Monitor summarizes it the same way: the lien usually ranks like other real-property tax liens, which sit above mortgages, including earlier-recorded ones.

For a new lender, that cuts both ways. A cash-out refinance in first position cannot get ahead of the PACE lien. A HELOC in second position sits even further back. A line does not dodge the problem just because it is smaller than a first mortgage.

Two limits on what is known here. Federal housing regulators raised safety-and-soundness concerns about first-lien PACE programs for agency and Federal Home Loan Bank collateral. That concern shapes agency lending. It is not a legal bar on non-agency lenders, so how a given lender treats PACE is a credit-policy choice. Also, the PACE rule defines the financing by reference to the consumer’s real property, and how it applies to a business-purpose rental is not settled in the material reviewed here. Consumer-protection treatment may differ for investment properties.

Key Terms Defined

PACE assessment: a home-improvement financing obligation repaid through the property tax bill and attached to the property, not the borrower.

Super-priority lien: a lien that ranks ahead of mortgage liens, including ones recorded earlier.

CLTV: combined loan-to-value, the total of all liens on the property divided by its value.

DSCR: the monthly rent divided by the monthly principal, interest, taxes, insurance and any HOA dues on the loan.

When the Bank Statement HELOC Is the Better Fit

The line works best when three things are true: the owner holds the property personally, the first mortgage is worth keeping, and the PACE balance is small enough to clear without gutting the equity.

Self-employed income that tax returns understate. A bank statement program qualifies the borrower on documented deposits under the applicable program, subject to lender guidelines. The lender still reviews credit, debts and the property. Across our network, the line programs carry a debt-to-income ceiling of 50%, and the ratio is measured on the interest-only payment calculated on the maximum draw. That is a personal-income test. Rent from the property is not the qualifying basis.

Personal title. The line programs we place require the property to be held by the individual borrower or a revocable living trust. LLCs, corporations, partnerships and irrevocable, blind or land trusts cannot hold title. If the rental is already deeded to an LLC, the line is off the table unless the vesting changes. In that case, a DSCR cash-out is usually the cleaner alternative.

An existing first mortgage that is worth keeping. A standalone line can sit in first or second position, so an owner with an existing low-cost first mortgage can leave it alone. The tradeoff is that the PACE lien still ranks ahead. The practical question is whether the lender will let the assessment stay in place or will want it paid off first. Planning for payoff avoids surprises.

Smaller needs, drawn over time. A line is built for staged capital. On investment properties the line runs a 5-year interest-only draw followed by a 25-year repayment period, and at least 75% of the line is drawn at closing. The borrower can draw the remainder later, subject to the program’s minimum draw. A borrower who needs one large lump sum is poorly matched to that structure.

Where the line runs out of room. The network ceiling on an investment property is 70% CLTV, with a 700 minimum credit profile and a maximum line of $500,000. On a primary residence the ceiling reaches 90% CLTV, but only at a 720-or-better profile and up to $500,000, and a line above $500,000 is limited to primary residences at 75% CLTV with a full appraisal. Residents of the 16 states where Lendmire places these lines can use them. The footprint is narrower than the 41-market DSCR footprint.

A modeled example makes the PACE effect concrete. Assume an investment property where the first mortgage is 45% of value and the PACE balance is 10% of value. If the lender counts the assessment inside combined leverage, the 70% CLTV ceiling leaves about 15% of value for the line. If the owner clears the PACE balance from cash first, the assessment no longer counts toward combined leverage, so the room grows to about 25% of value, since the line only has to fit behind the first mortgage. Those percentages are assumptions for illustration, not a quote.

When the Cash-Out Refinance Is the Better Fit

The DSCR cash-out is the stronger tool when rent, not personal income, is the cleanest way to show the file works, and when settling the PACE balance in the same closing is the goal.

One closing, one payoff. A cash-out replaces the existing first mortgage. The PACE payoff comes out of the proceeds, and title requires a recorded release. Early payoff is often possible, sometimes with a processing fee, and a release of lien is recorded afterward. The investor’s net cash drops by the payoff, so the proceeds estimate should start after that subtraction.

Property-rent-based lender review. 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 file qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Coverage of 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios generally open stronger leverage and better terms.

One caution: clearing 1.00 does not mean the property produces positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities and capital expenses sit outside the calculation.

Entity vesting. A DSCR cash-out commonly accepts an LLC with a personal guaranty, depending on program guidelines. That matters for the investor who holds rentals in entities. It is also the answer for a PACE-encumbered property already deeded to an LLC.

Leverage and credit. Cash-out refinances on standard rentals top out around 75% LTV across most of the network, and about 6 months of seasoning is the common expectation. A short-term rental cash-out is capped at 70% LTV, with a 640+ score and about 12 months of hosting history expected. A 620 credit floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers. Loan sizes reach up to $3,000,000 on standard programs, with smaller balances available through select lenders. Reserves vary by lender, leverage, loan size and transaction type. About 6 months of PITIA is common, and loans above $1,500,000 often step up to roughly 9 months.

Where it falls short. A cash-out replaces the first mortgage, so the investor gives up whatever terms the old loan carried. Because the new loan is sized to the property and to the full payoff stack, a balance of PACE plus first mortgage that approaches the 75% ceiling leaves little or nothing in net proceeds. Manufactured homes, log homes and barndominiums are not offered on these DSCR programs.

The same modeled example, run on the refinance: assume a 45% first mortgage and a 10% PACE balance. A new loan at 75% LTV on a standard rental pays off 55% of value in liens, which leaves about 20% of value in gross proceeds before costs. That falls inside the range the line offered in the investment-property example above (15% to 25% of value, depending on how the PACE balance is handled), so the refinance is not automatically the larger option, and it works only if rent clears the coverage test on the larger new loan. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

The Sequencing Checklist

The order matters more than the product. A workable sequence:

1. Find the assessment on the tax bill or title commitment. It usually appears as a non-ad valorem or special-assessment line.

2. Confirm whether it is residential or commercial PACE, and which administrator holds it. Commercial PACE also carries super-senior status.

3. Request an official payoff quote from the administrator. Partial payments do not release the lien.

4. Decide the source of the payoff: cash, available equity, or loan proceeds.

5. Check for contractor liens tied to the PACE-funded work, which may also need clearing.

6. Confirm the lender’s PACE policy and the required evidence of release before you pick a product.

The assessment can sometimes transfer to a buyer or stay in place, but only if the new lender permits it. Agency programs are more restrictive, and agency guidelines generally require payoff on lien-priority PACE as a loan condition. DSCR and non-QM files are not agency products, and plans built on keeping the assessment in place deserve a lender conversation first.

Where Investors Misjudge This Choice

A few misunderstandings come up often enough to name.

Assuming a line can sit comfortably behind the assessment. A line is junior to the PACE lien as much as any other mortgage-type lien. It does not avoid the payoff question.

Treating PACE as a mortgage payment. The assessment is typically collected through the tax bill, so it often does not appear on a mortgage statement, though some lenders may escrow it alongside taxes. It is easy to leave out of equity math. Unpaid assessments are collected like property tax liens, and tax foreclosure risk exists for the owner and for any lender behind it.

Assuming bank statement means light review. Deposits replace tax returns as the income evidence. Credit, debts, equity and the property are still reviewed.

Choosing by product label. Many investors compare the two by structure alone. The better comparison is leverage ceiling, vesting, and whether the PACE payoff fits inside the equity that remains.

Choosing Between Them: A Balanced Verdict

For the investor with a personally titled property, a first mortgage worth keeping, a modest capital need and bank deposits that show income well, the line is often the right tool. It adds capital without disturbing the first mortgage, provided the PACE balance has a clear path to payoff.

Where the answer flips: if equity after the PACE payoff is too thin for either product, paying down the assessment or waiting is a legitimate third option. If the property is an investment rental, rent coverage is strong and the owner would rather not run personal income through the file at all, the DSCR path simplifies the story. If the borrower owns the home personally, the first mortgage carries terms worth protecting and the draw need is staged, the line fits better. Lendmire’s wholesale network places both, and a broker that shops several lenders can match the file to the program that fits. Lendmire’s piece on the bank statement HELOC when the home has a PACE assessment goes deeper on the line side, and the complete DSCR loans guide covers the cash-out side.

If you are weighing a home equity line against a cash-out refinance and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. The calculator on this site gives an illustrative estimate you can adjust.

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

About Lendmire

Lendmire — NMLS# 2371349 — is a mortgage broker that arranges home equity lines of credit in its 16 full-service states through wholesale lenders, on primary residences, second homes and investment properties. Every line is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Ygrene PACE FAQ

2. CFPB PACE Reg Z final rule

3. Consumer Finance Monitor

4. FHFA Statement on Certain Energy Retrofit Loan Programs