The Quick Read: The family loan reduces your cash because it is paid off at closing, before you receive anything. Your proceeds equal the new loan minus the family note payoff (principal plus accrued interest), any other liens, closing costs, prepaids, escrows, and any prepayment charge on old debt. If those payoffs and costs exceed the new loan, nothing comes out and you may need to bring cash.
- The new loan is capped at about 75% LTV on a standard rental cash-out, and rent coverage can cap it lower.
- The family payoff comes off the top, and accrued interest makes it larger than the original principal.
- A secured (recorded) family note must be paid and released; an unsecured note works differently.
- Pulling cash raises the payment on the whole balance, which lowers coverage.
- About 6 months of ownership seasoning is the common expectation. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
DSCR cash-out refinances 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.
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.
How the Cash Number Is Built
The cash is whatever remains after every payoff and cost is subtracted from the new loan. Start with the loan amount, subtract total closing costs, subtract all payoffs (the family note among them), and the remainder is your check. The family loan does not change the formula. It changes how much comes off the top.
Think of it as a waterfall:
| Step | What happens |
|---|---|
| New loan amount | Lower of the value cap and the rent cap |
| Minus payoffs | Family note, first mortgage, any other liens |
| Minus costs | Closing costs, prepaids, escrows |
| Minus penalties | Prepayment charge on old debt, if any |
| Equals | Net cash to you (or cash you must bring) |
The federal sample refinance closing disclosure shows the same layout: loan amount first, closing costs subtracted, payoffs and payments subtracted, and the remainder shown as cash to close. In that sample, the payoffs slightly exceed the loan amount, so the borrower owes money at closing instead of receiving any. A family note can tip a file the same way when equity is thin.
Which Limit Binds: Value or Rent?
Two ceilings size the new loan, and the lower one wins. Across most of the wholesale network, cash-out tops out around 75% of appraised value on a standard rental. Short-term-rental collateral sits lower, at about 70%. That is the value cap.
The second ceiling is the rent cap. DSCR divides monthly rent by the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues. Many select programs start at 1.00 coverage. A separate select-lender path goes below 1.00, with leverage and terms adjusted. A bigger loan means a bigger payment, so a property that passed at purchase may not pass at a larger balance. When rent binds first, the loan shrinks until coverage clears, and your cash shrinks with it.
Equity alone does not tell you what you will receive. A property with plenty of equity and modest rent can produce less cash than a property with less equity and strong rent.
Does the Family Loan Change the Cash-Out Classification?
Sometimes. If the refinance returns cash to you, it is a cash-out file at the 75% ceiling for standard rentals. If proceeds only retire existing debt and cover costs, it can price as a rate-and-term refinance, which carries a higher leverage ceiling (up to 85% in the verified parameters) but pays you nothing at closing.
A family note complicates the label in a few ways:
- Secured note, recent origination. If the family lender funded the purchase or a renovation and recorded a lien, the payoff is simply another line item. How the file is classified depends on the program, the seasoning clock, and what the note funded.
- Secured note, long-held. Same math, usually a simpler payoff.
- Unsecured note. Nothing forces a payoff at closing, so the loan does not automatically reduce proceeds. You can repay the relative afterward from your own cash. Whether a program restricts using proceeds on personal debt is a guideline question to settle before committing.
What Title Needs From Your Family Lender
For a secured note, the title or escrow company requests a payoff statement from the family lender. Gather these items in advance:
1. The signed promissory note and the recorded mortgage or deed of trust.
2. A written payoff demand showing principal, accrued interest, and any fees.
3. Instructions for where payoff funds should be wired.
4. A commitment to record a release of lien once paid.
5. Records of payments made, such as cancelled checks or bank transfers.
A payoff can include a demand fee and recording costs on top of accrued interest, so the figure may exceed the original principal. Request the written payoff before you build any plan around the proceeds. A family lender may not report payments to credit bureaus, so the borrower’s own bank records can serve as the evidence of repayment history.
The Informal Loan Problem
A handshake loan can create a different kind of trouble. The IRS can treat a loan with no written note, no repayment schedule, and no interest as a gift. Below-market family loans can also create imputed interest, as this tax explainer on imputed interest describes. Small loans are generally exempt.
For your refinance, the practical point is documentation. If the “loan” was really a gift, there may be no payoff at all, but a lender may ask for a gift letter or a written explanation. If it is a real loan, a signed note and payment records make the payoff clean. Tax treatment varies; consult a qualified professional.
Worked Scenarios (Illustrative Percentages and Ratios)
These are modeled assumptions, not market data. Each uses a standard rental at the 75% cash-out ceiling. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Scenario one: no family loan. An owner holds a rental with a first mortgage and strong rent. The value cap sets the loan at 75% LTV, rent coverage clears around 1.2x, and the only deductions are the first-lien payoff and closing costs. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Scenario two: secured family note. Same property, but a relative holds a recorded second lien. The new loan is the same size. The family payoff, with accrued interest and fees, comes out in addition to the first mortgage, so cash drops by the full payoff. If the combined payoffs approach the 75% cap, the check approaches zero.
Scenario three: unsecured family note. Same property, no lien. Because the note is not secured, it does not reduce closing proceeds in this scenario. The owner receives the cash and decides whether to repay the relative voluntarily. Rent coverage is the same as in scenario one, and so is the cash at closing.
| Factor | No family loan | Secured note | Unsecured note |
|---|---|---|---|
| Payoff at closing | First lien only | First plus family | First lien only |
| Cash to investor | Highest | Lowest | Same as no loan |
| Release of lien | One | Two | One |
| Documentation | Standard | Payoff demand | Note and records |
Two stacked family notes behave like scenario two twice. Each payoff comes off the top, and the cash can fall below zero quickly.
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.
Decision Table: Cash-Out, Payoff-Only, or Leave It Alone
| Situation | Likely better move |
|---|---|
| Plenty of equity, strong rent coverage | Cash-out to retire the note and keep a reserve |
| Equity only covers the payoff and costs | Payoff-only refinance, expect no cash |
| Unsecured, no-interest note, no pressure | Leave it; repay from cash flow |
| Family note is cheaper than new debt | Compare carrying costs before replacing it |
| Sale planned in the near term | Skip cash-out; new prepayment terms start a new clock |
Replacing a low-interest or zero-interest family note with institutional debt raises your carrying cost. DSCR also measures rent against the payment only. Clearing 1.00 does not mean the property cash-flows, because repairs, vacancy, management, utilities, and capex sit outside the calculation. Run both tests before you trade cheap family money for institutional debt.
Key Terms Defined
Gross cash: The loan amount before any payoffs, costs, or reserves are deducted.
Net cash: The amount you actually receive after every payoff, cost, and penalty comes out.
Payoff: The balance, with accrued interest and fees, needed to retire an existing debt and release its lien.
Payoff-only refinance: A refinance that retires existing debt and covers costs but returns no cash to the borrower.
Seasoning: The ownership period a program expects before cash-out, about 6 months from title recording in most of the network.
Reserves: Liquid funds, commonly about 6 months of PITIA, that a lender may require to be verified after closing.
Common Mistakes
- Assuming 75% of value arrives as cash. The cap limits the loan, not your proceeds.
- Ignoring accrued interest and payoff fees on the family note.
- Sizing the loan on equity and forgetting that rent coverage can bind first.
- Treating reserves as spendable. Cash held back for reserves is not available to deploy.
- Skipping a written note, then discovering at the table that the lender wants an explanation.
- Planning to lend the proceeds back to the relative without thinking through how that transfer is documented.
What Else Reduces the Check
Reserves can matter. Programs commonly look for about 6 months of PITIA, and about 9 months on loans above $1,500,000, though requirements vary by lender, leverage, and loan size. If you must show reserves, proceeds you plan to spend may need to stay in the bank instead. Credit also matters: a 620 floor exists in parts of the network, most programs want around 660, and 700+ opens the strongest leverage tiers. Standard programs run up to $3,000,000, with eligibility reviewed file by file.
The complete DSCR loans guide covers the broader program picture. Programs change, and every file is reviewed individually, subject to lender guidelines.
Frequently Asked Questions
Does a family loan count as a payoff on a DSCR cash-out refinance?
A secured family loan does, because the lien has to be paid and released at closing. An unsecured note usually does not force a payoff, so it does not automatically reduce your proceeds. Confirm how the program treats family debt before you plan around the check.
What if the family payoff is larger than the cash I could receive?
You would bring cash to closing or restructure the plan. When payoffs and costs exceed the new loan, nothing comes out. A payoff-only refinance may be the realistic option in that case, and thin equity or tight rent coverage both push toward it.
How is accrued interest on the family note handled?
It is added to the payoff. The family lender’s written payoff demand states principal, unpaid interest, and any fees, and title pays that figure from the loan. Request the statement early, since the total is typically higher than the original principal.
Do I need paperwork for an informal family loan?
Yes, a written note and payment records make the file much cleaner. Without them, the transfer may be viewed as a gift, and a lender may ask for a gift letter or explanation.
Can I lend the cash back to the family member?
Structurally you can, but it creates its own risks, including documentation, gift treatment, and your own reserve position. Keep reserves intact and put any new family loan in writing before the money moves.
For the mechanics of pulling equity out of a rental property, see Lendmire’s guide to cash-out refinance on an investment property.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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References
1. CFPB sample Closing Disclosure, refinance (H-25)
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: How to Release One Rental From a Blanket Loan With a DSCR Cash-Out Refinance · How Much Cash Comes Out of a Short-Term Rental Cash-Out Refinance on a Home They Own? · How Much Cash Comes Out of a DSCR Cash-Out Refinance for Repairs Without a Contractor?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.