The Quick Read: Usually, the line equals the program’s combined loan-to-value ceiling times the finished home’s value, minus every lien still recorded on it, then capped at the program’s maximum line. The construction loan only matters through what is left of it. Once it converts or is paid off, the permanent first mortgage is the lien that counts.
- A second lien behind a kept first mortgage reaches 70% CLTV at a 720 score or better, on lines from $50,000 to $500,000, subject to underwriting.
- A first lien on a rental with no mortgage reaches 75% LTV at 740 or better, and 70% from 700 to 739, on lines to $500,000.
- A first-lien line above $500,000 and up to $1,000,000 carries a 65% LTV ceiling.
- A home still in the draw phase of a construction loan is not ready for this product. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
A newly built rental creates a sizing question that an ordinary rental does not: which lien is left, and what value does the lender credit? This article walks through the arithmetic, the exceptions, and the investor decision. For the full program picture, see Lendmire’s complete DSCR loans guide.
What Decides Your Limit
Four inputs set the number: the valuation, the leverage ceiling for your lien position and score, the balance of any first mortgage, and the program’s line cap. The formula is plain.
Line size = (value × leverage ceiling) − existing liens, then limited by the line maximum.
A second-lien line is sized on combined loan-to-value, meaning the first mortgage balance plus the new line, divided by value. The full credit limit counts, not just the amount drawn. A first-lien line is sized on loan-to-value alone because nothing sits ahead of it.
The rent then has to support the size. The program tests a minimum 1.10x coverage, which is gross monthly rent divided by a stress payment: a fully amortizing payment on the entire credit limit at a start rate plus 2 percentage points. Rent is the lesser of the appraisal’s market rent and the lease, unless three months of receipts support a lease above market. Taxes and insurance are not part of that qualifying payment. On a second lien, confirm on the file how the lender treats the first-mortgage payment, because the lender’s own coverage calculation governs.
That has a consequence worth stating. A bigger line raises the stress payment. So the largest line the equity allows is not always the largest line the rent allows. On a new build with a modest lease, coverage can cap you before the leverage ceiling does.
How the Construction Loan Ends Changes the Math
The exit decides your lien position. Three situations come up.
| Construction exit | Ready for a line? | Lien the line sits behind | Next step |
|---|---|---|---|
| Single-close loan converted to permanent | Yes, once seasoning is met | Permanent first mortgage | Second-lien sizing (720 score) |
| Construction-only loan paid off by a new mortgage | Yes, once seasoning is met | The new mortgage | Second-lien sizing (720 score) |
| Construction loan paid off with cash | Yes, once seasoning is met | None | First-lien sizing (700 floor) |
| Construction loan still open | No | Unsettled | Finish the build first |
On a construction-only loan, the permanent mortgage pays off what remains of the construction loan, so the construction loan no longer exists, as Freddie Mac’s MyHome education page explains. The new first mortgage is the one that counts in your CLTV. A single-close loan converts on its own, and the converted loan becomes the first lien.
A rental with no mortgage at all is the only way into a first-lien line. A borrower who keeps a first mortgage takes a second lien, and that route starts at a 720 score.
Sizing Example: Second Lien
Run the numbers on a finished rental valued at $600,000 with a permanent first mortgage left over from the build. Assume the borrower scores 720 or better. These inputs are modeled assumptions, not market data.
1. Apply the 70% CLTV ceiling to the $600,000 value. That sets the total debt the lender will allow against the home.
2. Subtract the first mortgage balance. What remains is the most the line can be, before the line cap.
3. Check the result against the $500,000 second-lien cap and the $50,000 minimum. If the remainder falls under $50,000, there is no second-lien line.
4. Test the rent against the stress payment on the whole credit limit. If coverage lands under 1.10x, the line has to shrink until it clears.
The size of the first mortgage controls everything. If it already consumes most of the 70% ceiling, the line is small or zero, no matter how well the home appraised. Builders who financed most of the cost often find exactly that.
Sizing Example: First Lien
Now take a rental the investor built with cash or paid off, with no mortgage. At 740 or better, the ceiling is 75% LTV on lines to $500,000. At 700 to 739, it drops to 70%. Above $500,000 the ceiling is 65% LTV, and lines run to $1,000,000. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
On a $900,000 home, the 65% ceiling applies to a line above $500,000. A borrower might take a smaller line at the higher tier instead, and the right answer comes from comparing the coverage test with the dollars needed. A larger line carries a larger stress payment, so the smaller line is often the one that clears coverage with room to spare.
How a New Build Gets Valued
A new build has few comparable sales, and its cost can differ from its market value. The lender orders its own valuation, and the usable equity is the home’s value minus what you owe, as the CFPB’s HELOC explainer frames it.
On this program, the valuation path depends on the line size:
- Lines to $400,000: an automated valuation with a confidence score of 85 or better, paired with a property inspection report, or a full interior appraisal.
- Lines above $400,000: a full interior appraisal on Form 1004, 1073 or 1025.
- Appraisal waivers are not accepted.
Expect the appraiser to look hard at the finished home’s comparables and to give a Form 1007 market rent. Your value is whatever the lender’s valuation supports. Whether the lender also looks at documented construction cost is a question to settle on the file, because no outside source fixes that treatment for this product.
Seasoning: Two Clocks
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).
On a build, the practical question is which date starts each clock. A permanent loan that replaced the construction loan is a new note, so confirm with the lender how that note date is treated. Plan the line around the later of the two dates, and do not assume the certificate of occupancy starts the clock.
Who and What Is Eligible
The property must be a non-owner-occupied one-to-four-unit rental with a lease in place. A two-to-four-unit building may have at most one vacant unit. Eligible types include single-family, PUD, townhome, two-to-four units, and warrantable and non-warrantable condominiums, plus lots to 10 acres.
Outside the program: rural-designated property, row homes, condotels, commercial or agricultural property, leaseholds, land trusts, age-restricted communities, hobby farms, modular and log homes, land contracts, mixed-use, a property listed for sale in the prior 2 months, and a property with a solar lien. A declining-market flag lowers the ceiling by 5 points, and Philadelphia lines carry a ceiling 10 points lower.
Borrowers can be US citizens, permanent residents, or non-permanent residents with a Social Security number. Foreign nationals and ITIN borrowers are not eligible. The LLC can hold title, subject to lender program eligibility, with members signing as guarantors.
This is a bank-style product with a different qualifier. NerdWallet notes that investment-property HELOCs have strict requirements and limited availability, and that some lenders restrict them by location or rental use. Many bank desks qualify the line on personal income. Across Lendmire’s wholesale network, the programs that qualify on the rental’s income carry no traditional personal-income documentation, W-2s or personal income calculation, subject to lender guidelines. Credit is still reviewed: a 720 minimum on a second lien and 700 on a first lien, with no 30-day mortgage late in the last 12 months and 48 months since a bankruptcy, foreclosure, short sale or deed-in-lieu.
Key Terms Defined
DSCR: the debt-service coverage ratio, meaning gross monthly rent divided by the qualifying payment.
CLTV: combined loan-to-value, which is the first mortgage balance plus the new line, divided by value.
LTV: loan-to-value, used for a first-lien line where no other mortgage exists.
Seasoning: the time that must pass since a purchase, refinance or title transfer before the line is available.
Lien position: whether the lender is paid first (first lien) or after the first mortgage (second lien).
Draw period: the 5-year window of interest-only payments on the drawn balance, followed by 25 years of full repayment.
How the Line Works After Closing
At least 80% of the line is drawn at closing, and the closing draw is never under $50,000. On the smallest lines, that means the whole line is drawn at closing. Later draws are $5,000 or more each. The draw period is 5 years interest-only on the drawn balance, then a 25-year fully amortizing repayment period, for a 30-year maturity. The rate is variable.
This is not a phased construction draw product. A lender can also stop further draws if the home’s value falls significantly, a point the CFPB flags for HELOCs generally. That matters on a newly completed home whose appraisal came in strong.
At most 5 loans or $2,500,000 per borrower can sit with the program, and no reserves or cash to close are required. Hazard insurance must cover both liens, with flood coverage where required. Title work runs as a full policy on a first lien and on second liens above $400,000, and an owner-and-encumbrance report on smaller second liens.
When This Product Does Not Fit
| Situation | Why it stalls | Usual alternative |
|---|---|---|
| Build still in draw phase | No settled lien; value not final | Finish construction first |
| First mortgage eats most of 70% CLTV | Little or no room for a line | DSCR cash-out refinance |
| Score under 720 with a kept first mortgage | No second-lien cell below 720 | Improve credit or refinance |
| Rural-designated lot or row home | Excluded property type | Different program |
| Owner lives in the home | Owner-occupied; not offered | Primary-residence HELOC |
A cash-out refinance replaces the first mortgage, while a line leaves it in place. That tradeoff is the real investor decision. A second lien also has to be cleared before a later cash-out refinance on the same property, so factor in the exit.
If you lived in the home first and then converted it to a rental, the lease has to be in place and the lender will treat it as non-owner-occupied only once the use is documented. This is where the lease, rent schedule and title papers need to line up.
Documents to Gather
- The conversion or payoff statement for the construction loan.
- The certificate of occupancy and final completion paperwork.
- The valuation or appraisal.
- The lease and, if the lease is above market, three months of rent receipts.
- Title or vesting documents, including LLC papers where used.
- The homeowner’s insurance policy covering both liens.
Where Lendmire Fits
The program is offered in 15 of Lendmire’s 16 licensed states, every licensed state except Tennessee. Lendmire is a broker, so the line is placed through a wholesale lender, and every file is underwritten individually. Parameters here are ceilings and floors through select programs, subject to underwriting, not offers.
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. Reach the team at 828-256-2183 or request a quote.
Frequently Asked Questions
Can I get the line while my construction loan is still open?
No. The lien picture has to settle first, and an unfinished home generally cannot support a line. Once the loan converts or is paid off, the permanent first mortgage becomes the lien counted in your CLTV.
Does the construction loan balance count against my limit?
Only what remains of it. If a permanent mortgage paid it off, that new first mortgage is what counts. If it converted, the converted balance counts. Either way, it reduces the room under the 70% CLTV ceiling on a second lien.
How long after finishing the build must I wait?
Two six-month clocks apply: the line is not available on a rental bought or refinanced in the last 6 months (last note date to new note date), and title must have been held for 6 months (settlement date to note date). Confirm with the lender how a conversion or payoff note is dated.
Can my LLC hold title to the home?
Yes, subject to lender program eligibility. The members sign as guarantors, and a title holder who is not a borrower signs a non-borrowing owner acknowledgment and the security instrument.
Is the appraised value the number I borrow against?
It is the starting point, since the lender orders its own valuation, and lines above $400,000 need a full interior appraisal. Whether documented construction cost also limits the figure is a file-level question, so ask before you plan around the appraisal.
For current guidelines and terms, see Lendmire’s DSCR HELOC programs page.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps landlords and real estate investors open DSCR home equity lines of credit on their rentals — lines qualified on the property’s rent, never on the owner’s own home — through wholesale lenders in 15 of Lendmire’s 16 licensed states (every licensed state except Tennessee). Lendmire is never the lender; line amounts, ceilings and terms are set by the lender under its 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. Freddie Mac MyHome – Loan options for building your home
3. NerdWallet – HELOC on an investment property
This article is part of Lendmire’s DSCR HELOC program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Can You Borrow on a DSCR HELOC for Investing in Mortgage Notes? · DSCR HELOC Requirements on a Home Built Under a Construction Loan · How Much Can You Borrow on a DSCR HELOC to Pay Off a Hard Money Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.