The Quick Read: The lender runs two separate tests and honors the lower result: appraised value caps how big the new loan can be, and the contractor’s documented deposits cap how much payment the file can carry, and the payoff plus costs must fit under both. The payoff itself is a moving number. It includes principal, accrued interest, exit fees and closing costs.
- The new lender orders its own appraisal. The contractor’s after-repair estimate does not drive the loan size.
- Bank statement income is an average of cleaned deposits, not a sum of everything that hit the account.
- Hard money draws and loan proceeds deposited into the account are not income.
- Any cash left over after the payoff turns the file from payoff-only into cash-out.
- On a rental, a DSCR loan tests the rent instead of the contractor’s deposits and is often the cleaner exit.
Key Terms Defined
Payoff statement: the hard money lender’s written figure for principal, interest, fees and the per diem needed to clear the lien on a given date.
Per diem: the daily interest that keeps adding to the payoff until the note is actually retired.
Expense factor: the percentage of business deposits the lender treats as operating cost rather than income.
Qualifying income: the monthly figure left after the lender removes non-income deposits, applies the expense factor and averages over the statement window.
Break-even appraisal: the lowest appraised value at which the new loan still covers the payoff and costs with no cash to the borrower.
Seasoning: how long the borrower has held title before a cash-out refinance is allowed, measured from recording.
DSCR: monthly rent divided by the full monthly obligation (principal, interest, taxes, insurance and any HOA dues).
DSCR Cash-Out Calculator
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Why a Contractor’s File Reads Differently
A contractor’s tax return understates cash flow, and the deposits tell a lumpier story. Write-offs shrink taxable income. Client draws arrive in bursts. Money passes through to subcontractors and suppliers, which makes deposits look bigger than the profit behind them.
A hard money history adds a second wrinkle. The same account may hold rehab draws, loan proceeds and transfers between the contractor’s own entities. None of that is earnings. A lender reading the file has to separate what the business earned from what merely moved through the account.
That is the job of the bank statement lender. The loan is reviewed on documented income under the applicable program, subject to lender guidelines. It does not skip documentation. It swaps tax-return income for a deposit-based calculation.
Limit One: What the Deposits Support
The income test turns twelve or twenty-four months of statements into one monthly number. The steps run in the same order on almost every file.
1. Collect personal or business statements for the chosen window.
2. Strip out transfers, loan proceeds, refunds and one-off deposits.
3. On business accounts, apply an expense factor.
4. Multiply by the borrower’s ownership share.
5. Divide by the number of months.
Personal-account statements usually count a larger share of deposits than business statements do, because the expense factor is built for business accounts. A documented expense ratio from a CPA or tax preparer can lower the factor on some programs. Across the wholesale network, programs vary on all of this, so the file should be matched to the program, not the reverse.
The window matters for contractors. A twenty-four month average smooths a bad season. A twelve month average rewards a strong recent run. Pick the one the deposits actually support.
| Deposit type | Usually credited? | Why |
|---|---|---|
| Client progress payments | Yes | Revenue for the business |
| Final job payments | Yes | Revenue for the business |
| Transfers between own accounts | No | Same money counted twice |
| Hard money rehab draws | No | Loan proceeds, not earnings |
| Bridge loan proceeds | No | Debt, not income |
| Customer refunds and reversals | No | Offsets, not income |
| Owner contributions | No | Borrower’s own funds |
The hard money row is the one that trips contractors. A rehab draw lands in the business account and looks like a big month. The lender sees the draw schedule on the payoff file and takes it out. Double-counting between personal and business accounts is the other common cleanup item.
Limit Two: What the Value Supports
The new lender orders its own appraisal, and the leverage cap applies to that number. The contractor’s projected after-repair value is a planning figure. It never sets the loan.
This is where hard money and the exit part ways. Hard money is sized on cost and on after-repair value, within its own tiers. Hard money programs typically run 6-18 months, interest-only, and the leverage tiers vary by lender, property and experience. The exit loan is sized on what the property appraises for today, completed or not.
For a DSCR exit on a rental, the figures that matter are these. A DSCR cash-out refinance on a standard rental tops out at 75% LTV, with about 6 months of seasoning from title recording. A DSCR rate-and-term refinance, with no cash back, can run higher, up to 85%. Short-term rental collateral is lower, with cash-out at 70%. All of it is subject to lender guidelines and property review.
A deal can pass one test and fail the other. Equity looks fine on paper while the deposits cannot carry the larger payment. Or the income is strong and a soft appraisal leaves the loan short of the payoff.
What the Payoff Actually Is
The payoff is not the original loan amount. It is a bundle, and it keeps growing until the day the lien is released.
| Line item | What it covers |
|---|---|
| Principal | Remaining balance on the hard money note |
| Accrued interest | Interest earned since the last payment |
| Per diem | Added for each day past the statement date |
| Exit or extension fees | Charges written into the note |
| Closing costs | Title, recording and the new loan’s costs |
A payoff letter carries a good-through date. If the new loan funds after that date, the per diem adds to the number. A stale letter understates the payoff, and the file comes up short at the table. Order a fresh statement whenever the exit date moves.
Title requests the statement, wires the old lender and then gets the lien released. If the numbers on the settlement statement do not match the payoff letter, the settlement reconciliation fails and the file waits.
One Contractor, Start to Finish
These are indexed units, not dollars. They show the chain, not a quote. Assume a twelve-month window.
1. Total deposits over the window: 1,200 units. 2. Non-income credits removed (transfers, draws, refunds): 200 units, leaving 1,000. 3. A modeled expense factor of one-half on the business account leaves 500 units of qualifying income for the year, about 42 per month. 4. The lender tests that monthly figure against the new payment and the borrower’s other debts. Call the result the income-supported loan size. 5. The appraisal returns 900 units of value. At a 75% cap, the value-supported loan is 675 units. 6. The payoff plus costs comes to 600 units.
If the income-supported loan is at least 675, the value cap is the binding limit. The loan is 675, and 75 units come back as cash. That is cash-out treatment, with the 75% ceiling and seasoning clock that come with it.
If the income-supported loan is only 590, income is the binding limit. The loan cannot retire the payoff, and the borrower brings the 10-unit gap plus any cost shortfall to the table.
The lower number wins every time. Strong equity cannot rescue thin deposits, and strong deposits cannot rescue thin equity.
Where the Documentation Rule Comes From
Bank statement lending exists because the standard mortgage method struggled with self-employed income. The federal ability-to-repay compliance guide says a creditor must use reasonably reliable third-party records to verify the income it relies on, and that deposits count only if they are confirmed as the consumer’s income. The agency’s own assessment report found that lenders had trouble applying the standard income method to self-employed borrowers. That gap is where the deposit-based niche grew.
Those rules are written for consumer-purpose credit. A rental purchase or refinance held for business is generally treated differently, and the lender’s own program guidelines decide what documents it wants.
The Break-Even Appraisal
The break-even appraisal is the most useful number on a payoff file, and it is simple: payoff plus costs, divided by the leverage cap. Using the modeled units above, 600 divided by 0.75 gives 800 units.
| Appraised value (units) | Max loan at 75% | Cash back or cash needed |
|---|---|---|
| 900 | 675 | 75 back |
| 850 | 637.5 | 37.5 back |
| 810 | 607.5 | 7.5 back |
| 800 | 600 | Zero, break-even |
| 780 | 585 | 15 needed |
A 10% value miss wipes out 90% of the cash back. The cushion shrinks faster than the value does because the cap applies to the whole value, while the payoff stays fixed. Build the break-even into the plan before the appraisal comes in, not after.
Payoff-Only or Cash-Out?
Cash flow, not intent, sets the label. A payoff that returns nothing is rate-and-term. Any cash above the payoff and costs makes it cash-out, and lender policy draws that line.
| Factor | Payoff-only | Cash-out |
|---|---|---|
| Cash to borrower | None | Yes |
| Leverage ceiling (DSCR, standard rental) | Up to 85% | 75% |
| Seasoning clock | Typically none | About 6 months from recording |
| Reserves | Often lower | About 6 months, about 9 above $1,500,000 |
| Scrutiny of proceeds | Light | Heavier |
Many contractors take a lean payoff and leave equity in the property. It avoids the seasoning clock and a tougher value test, and the equity can be pulled later once the clock has run. If a contractor wants cash for the next project, the file is cash-out and is sized that way. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
When the Numbers Do Not Fit
Four patterns come up often. Each has a first move.
| Situation | First move | Main risk |
|---|---|---|
| Income-limited | Longer window, or a CPA expense letter | Lower factor not accepted |
| Value-limited | Appraisal reconsideration with local comps | Value stays flat |
| Note nearing maturity | Plan the exit before the balloon | Extension fees stack up |
| Rent covers, deposits do not | Move to a rent-based loan | Coverage below program floor |
The fourth row is the contractor’s best alternative. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Lumpy deposits drop out of the test. Select programs start at 1.00 coverage, and a separate select-lender path goes below 1.00 with leverage and terms adjusted.
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.
Coverage is not the same as profit. DSCR compares rent to the full monthly obligation only. Repairs, vacancy, management, utilities and capex sit outside the calculation, so a file that clears 1.00 is not automatically cash-flow positive.
Credit and reserves still apply. A 620 score is the floor in parts of the network, most programs want about 660, and 700 or more opens the strongest leverage. Loan sizes on standard programs run up to $3,000,000, and the network generally holds to 30-year fixed structures above $2,500,000. Manufactured homes, log homes and barndominiums are not offered.
For the full picture of how these loans work, see Lendmire’s complete DSCR loans guide. The structure for leaving short-term debt is laid out in the hard money exit refinance program. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path.
Where Payoff Files Go Wrong
A few errors repeat across files. Each is preventable with paper in hand before submission.
- A stale payoff letter. The per diem keeps running, so the number on the settlement statement exceeds the letter.
- Sizing on after-repair value. The new appraisal sets the cap, not the contractor’s estimate.
- Rehab draws counted as income. The lender removes them, and qualifying income drops.
- Double-counted transfers. Money moved between personal and business accounts shows up twice.
- Assuming payoff means rate-and-term. Any cash back changes the label and the leverage cap.
- Entity documents out of order. LLC vesting is often permitted, subject to lender program eligibility, but operating agreements and good-standing letters have to match the title.
Frequently Asked Questions
Does a bank statement lender look at the hard money loan’s payment?
It looks at the new loan, which replaces the old one. The hard money payment drops out once the lien is paid off. The new payment, taxes, insurance and the borrower’s other debts are what count on the new file.
Can hard money draws count as income on a bank statement loan?
No. Draws and loan proceeds are debt, not earnings, and lenders strip them out. Only revenue the business actually earned is averaged into qualifying income.
Should a contractor use twelve or twenty-four months of statements?
Twenty-four months smooths seasonal swings and a weak year. Twelve months helps when recent deposits are stronger. The better choice is whichever window the lender allows and the deposits support.
What happens if the appraisal comes in below the break-even?
The loan shrinks and the borrower brings cash to cover the gap. An appraisal reconsideration with recent nearby sales is the usual first step. If value stays flat, the file may need a smaller payoff, a partial paydown or a different exit.
Is a DSCR loan easier than a bank statement loan for a rental payoff?
It depends on which has more headroom: rent or income. A DSCR file tests only the property’s rent against the full monthly obligation. A bank statement file tests the borrower’s deposits. Terms vary by lender and are not a commitment to lend.
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. Call 828-256-2183 or request a quote.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 2025 and 2026.
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References
1. CFPB Ability-to-Repay and Qualified Mortgage Small Entity Compliance Guide
2. CFPB: CFPB Ability to Repay Qualified Mortgage Assessment Report
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Exit Hard Money When Your Appraisal Falls Under All-in Cost · Hard Money vs Cash Purchase Requirements for a Rental Property · Can a Hard Money Lender Secure One Loan Across Multiple Properties?
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.