The Quick Read: The cash you receive is the new loan amount minus the first-mortgage payoff, the second-mortgage payoff, closing costs, prepaids, and any prepayment charge on the old note, and on a thin-equity property that result can be zero. The new loan is capped at a percentage of appraised value, and the second lien comes out of the same pot dollar for dollar.
- The new loan on a standard rental tops out around 75% LTV on a cash-out refinance.
- The 75% applies to the new loan, not to the cash you receive.
- Paying off a non-purchase-money second can make the file a cash-out even when no cash comes back.
- A bigger loan means a bigger payment, so rent coverage is retested on the new balance.
- Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Here is how the subtraction works, where it breaks, and how to decide whether to retire the second inside the new loan.
DSCR Cash-Out Calculator
Run the cash-out numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Nov 5, 2026
Prefilled with starting assumptions — enter your property’s value, balance, taxes, and insurance for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Nov 5, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
The Formula, in Order
One new first-lien loan retires everything on the property. What is left after that is your check.
1. Start with appraised value.
2. Multiply by the cash-out LTV ceiling. On a standard rental that is about 75%. That is the maximum new loan.
3. Subtract the first-mortgage payoff, including accrued interest.
4. Subtract the second-mortgage or HELOC payoff.
5. Subtract any prepayment charge on the old note.
6. Subtract closing costs and prepaids.
7. What remains is net cash.
The second lien is not a side issue. It is line 4 of that list, and it removes cash one-for-one.
There is a shortcut. At a 75% cap, the appraisal has to come in at roughly 133% of your total payoff plus closing costs before any cash comes back. Total payoff here means the first, plus the second, plus costs. If the appraisal lands below that line, the deal becomes a payoff-only refinance.
A Worked Illustration
These are hypothetical round numbers, not market data. Think in units, not dollars.
- Appraised value: 400 units.
- New loan at the 75% cash-out ceiling: 300 units.
- First-mortgage payoff: 180 units.
- HELOC payoff: 40 units.
- Closing costs and prepaids: about 9 units.
- Net cash: about 71 units. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Now remove the HELOC from the picture. Same property, same appraisal, same costs. Net cash rises to about 111 units. The second lien took exactly 40 units off the check.
Now run the other two outcomes.
- Break-even. If payoffs plus costs equal the 300-unit loan, nothing comes back. Everything is cleared and the borrower walks away with a single lien.
- Shortfall. If the appraisal drops to 360 units, the 75% loan is 270 units. Payoffs plus costs of 229 units still leave only about 41 units of cash. Lower the value further, or raise the second balance, and the new loan cannot cover both payoffs. The borrower then needs cash at the table, a paydown on the second beforehand, or a different plan.
The illustration is only a mechanism. Actual figures depend on the appraisal, the payoff letters, and the lender’s pricing and fees.
Does Paying Off a Second Count as Cash-Out?
Often yes. This is the part that catches borrowers who expect cash-out to mean cash in hand.
On the network’s programs, a second that was not used to buy the property, such as a HELOC drawn for renovations or personal spending, makes the refinance a cash-out even if you receive no money. The cash-out leverage ladder and its credit requirements then apply, rather than the higher rate-and-term leverage. In short: the label depends on what the old debt was for, not on what lands in your account.
A purchase-money second can be treated differently. Some programs read that payoff the way they read a rate-and-term refinance. Programs vary, so ask the lender for the treatment in writing before you price the deal around it.
| Second-lien type | How it is cleared | What changes the number |
|---|---|---|
| HELOC | Paid off at settlement, line closed | Draws and daily interest move the balance |
| Closed-end second | Paid off at settlement | Payoff letter amount |
| Purchase-money second | Paid off; may be treated differently | Program treatment, ask in writing |
| Private or seller-carry second | Paid off with a lien release | Lien release and payoff statement |
A HELOC balance is not a fixed number. It changes with each draw and each day of interest. Get a written payoff letter and ask for a per-diem figure so the settlement statement reconciles at closing.
Why 75% of Value Is Not 75% of Your Cash
Borrowers hear “75% LTV” and picture a check for three quarters of the house. That is wrong. The 75% applies to the new loan. That loan then repays the old liens and pays the costs. Only the leftover is yours. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
On a property with a first mortgage and a second, the stack gets tall quickly. A borrower who owes 55% of value on the first and 15% on the second has used 70% before costs. At a 75% ceiling, that leaves a narrow gap, and closing costs eat part of it. Credit Karma’s explainer notes that closing costs on a cash-out refinance on an investment property can reach up to 6% of the loan. Plan for costs to take a real bite.
The Appraisal Sets the Ceiling
Everything starts with appraised value. The lender takes that value times the cash-out ceiling. If the appraisal comes in light, the ceiling drops and the check drops with it, often faster than expected, because the payoffs are fixed amounts and do not shrink when value does.
Appraisers on rental files commonly work from the rent schedule form (Fannie Mae 1007) and, on small multi-unit properties, the small residential income property form (Fannie Mae 1025). Those forms support the rent figure and the value. They do not change the program leverage.
If the number comes in below what you need, you have three moves:
1. Accept a payoff-only refinance with no cash back.
2. Pay the second down first, which gives a smaller new loan but needs cash on hand.
3. Keep the second in place and ask the holder to subordinate (covered below).
The Second Lien Must Be Cleared or Subordinated
A cash-out pays off every lien on the property. A junior lien has to be paid off or subordinated. Title work covers all of them, and the second shows up on the settlement statement as a payoff.
Subordination is the alternative. Nolo describes a subordination agreement as a legal contract that determines which lender gets paid first if a foreclosure occurs. The new first-lien lender will typically not close behind a senior second unless the second-lien holder agrees to sit behind it. The junior holder can say no. If it will not subordinate, the new lender will not refinance the first.
Combined leverage still applies when the second stays. The new first and the remaining second together have to fit the leverage limits, and rent must still cover the payments. A line opened just before a refinance creates a subordination request you did not need. Sequence matters.
Rent Coverage Is Retested on the Bigger Loan
A larger loan carries a larger payment. DSCR compares rent to PITIA (principal, interest, taxes, insurance, and any HOA dues). When the new loan is bigger than the old first, the same rent covers a larger payment, and the ratio falls.
Rent often becomes the binding limit before equity does. Plenty of properties have the equity to retire both liens and still run short on coverage. Select programs start at 1.00; stronger ratios open better pricing and leverage. A separate path through select lenders in the network goes below 1.00, with leverage and terms adjusted.
Clearing the ratio does not mean the property cash flows. DSCR counts rent against PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside it. Check coverage on the new balance before you ask for a loan amount, not after.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Edge Cases That Move the Number
Prepayment penalty on the old note. If the existing first is itself a DSCR loan, refinancing out of it can trigger a prepayment charge. It comes out of your net proceeds. Pull the note and check the schedule before you model anything.
Reserves. Programs typically ask for about 6 months of PITIA in reserves, stepping up to about 9 months on loans above $1,500,000, subject to lender guidelines. On the network’s cash-out programs, proceeds from the refinance do not satisfy the reserve requirement on the subject property. Lenders in the wider market may treat it differently, but plan around the network rule. Reserves are cash you hold, not cash you spend.
Seasoning. About 6 months of ownership, measured from title recording, is the common expectation before a cash-out. A recent purchase may not qualify for cash-out.
Short-term rentals. Cash-out on a short-term rental is typically capped at 70% LTV, against 75% on a standard rental, and programs expect a 640+ score and about 12 months of hosting history. A lower ceiling means a smaller new loan and a thinner check with the same payoffs. 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.
Property type. Manufactured homes, log homes, and barndominiums are not offered in the network’s DSCR programs.
Payoff Only: When Equity Is Thin
If the appraisal cannot support both payoffs plus costs under the cash-out ceiling, the structure changes. A refinance with no cash back is rate-and-term, which reaches up to 85% LTV on the network’s programs. That higher leverage can make a thin file work, but it delivers no cash at closing. It also may not be available if the second was non-purchase-money, since that second can push the file into cash-out. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Here is a way to think it through. Say the numbers produce a small positive check but coverage lands close to the floor. The stronger play may be the payoff-only route, or paying the second down first, rather than stretching to a loan that barely clears. That is a judgment call. A borrower who wants cash for the next deal may reasonably disagree.
Pay Off, Pay Down, or Keep the Second?
| Option | New loan size | Cash needed | Main catch |
|---|---|---|---|
| Pay off inside the new loan | Larger | None | Reprices the whole balance, lowers coverage |
| Pay the second down first | Smaller | Cash on hand | Uses your own liquidity |
| Keep the second, subordinate | Smaller first | None | Junior holder can refuse |
One new loan retiring both liens removes the subordination problem. The cost is that a cash-out reprices the entire balance, not just the new cash. Compare the blended cost of the existing first plus second against the single new loan before you commit.
What the Cash Is For
Net proceeds are the only number that buys the next property, and quoting gross cash-out as spendable cash is a common planning error. If the plan is to use the money as a down payment on another rental, the purchase lender will want the funds sitting in your account and traceable to the refinance. Lendmire’s guide Can You Use a DSCR Cash-Out to Buy More Rental Properties? covers that paper trail.
Cash-out on a business-purpose loan should go to business purposes, such as the next rental or improvements. Per Credit Karma, the additional money from a cash-out refinance is not taxable as a loan. Tax treatment varies; consult a qualified professional.
Pre-Application Checklist
- A written payoff letter for the first mortgage, with per-diem interest.
- A written payoff letter for the second or HELOC, and confirmation the line will be closed.
- The old note, to check for a prepayment charge.
- A rough value estimate, then a check against the 133% shortcut.
- Rent figures for the property, so coverage can be tested on the larger loan.
- Proof of reserves held outside the refinance proceeds.
- The purchase date, to confirm about 6 months of seasoning.
The strongest files clear both tests: enough equity and enough rental coverage. Credit matters too. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers. For the full picture of how these programs fit together, see the complete DSCR loans guide.
Key Terms Defined
Second lien: A loan, such as a HELOC, that sits behind the first mortgage in repayment priority.
Payoff: The exact amount needed to retire a loan on a given day, including accrued interest.
Net proceeds: The cash left after the new loan pays every old lien, cost, and penalty.
Seasoning: The ownership period a lender expects before it will allow a cash-out refinance.
Subordination: An agreement in which a junior lienholder agrees to stay behind a new first lien.
Frequently Asked Questions
Will the second mortgage reduce my cash-out check?
Yes, dollar for dollar. The second-lien payoff comes out of the same new loan as the first payoff and the closing costs. Take the maximum new loan, subtract both payoffs and every cost, and what remains is yours. Remove the second from the equation and the check grows by exactly that balance.
What if I get no cash back at all?
The file can still be a cash-out. When the second was not a purchase-money loan, paying it off typically makes the refinance a cash-out on the network’s programs, so the cash-out leverage and credit requirements apply. A purchase-money second may be treated differently, so ask for the program’s treatment in writing.
How much does the appraisal need to be before any cash comes back?
At a 75% cap on a standard rental, the appraisal needs to be roughly 133% of your total payoff plus closing costs. Total payoff means the first plus the second plus costs. Below that, the deal becomes a payoff-only refinance, or you bring cash or pay the second down first.
Can I keep my HELOC instead of paying it off?
Sometimes. The HELOC holder must agree to subordinate to the new first, and it can refuse. If it will not, the new lender will not refinance the first. Combined leverage limits and rent coverage still apply, so keeping the second does not remove the underwriting test.
Does a cash-out refinance lower my DSCR?
Usually. A larger balance means a larger PITIA, and the same rent covers it with less margin. Test coverage on the new loan amount before you apply. Select programs start at 1.00, and below 1.00 is available through select lenders with leverage and terms adjusted.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C., and all programs are subject to lender guidelines and are not a commitment to lend.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
As a non-QM mortgage broker (NMLS# 2371349), Lendmire facilitates DSCR investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income instead of personal income documentation, subject to lender guidelines, serving LLC-structured portfolios and self-employed borrowers who don’t fit conventional boxes. A two-time Scotsman Guide Top Mortgage Workplace (2025, 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. Credit Karma – Cash-Out Refinance on an Investment Property
2. Nolo – Subordination Agreement
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Should You Do a DSCR Cash-Out Refinance to Fund an Adoption? · Super Jumbo DSCR Cash-Out Refinance vs Portfolio DSCR Loan to Pay for Renovations · How Much a DSCR Cash-Out Refinance Releases at the Standard Cap
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.