The Quick Read: Big banks rarely sell this product, because it is a niche line placed through wholesale lenders, secured by a rental you already own and qualified on that rental’s rent, and its cash can fund the down payment on a different purchase if the purchase lender accepts borrowed funds.
- The line is a standalone second lien behind the first mortgage you keep, or a standalone first lien on a rental with no mortgage. It is never closed together with the purchase.
- Through select programs, a second lien reaches up to 70% combined loan-to-value at a 720 credit score or better, on lines from $50,000 to $500,000, subject to underwriting.
- The line does not make the deal zero-down. The purchase lender sets its own rules for the down payment, closing costs and reserves.
- Lendmire arranges this line in 15 of its 16 licensed states, every licensed state except Tennessee. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Key Terms Defined
DSCR (debt service coverage ratio): Gross monthly rent divided by the monthly payment the lender tests it against. A result above 1.00x means the rent covers that payment.
HELOC (home equity line of credit): A revolving credit line secured by a property you own. You draw against it, and the unused part stays available under the program’s rules.
Second lien: A loan that sits behind the first mortgage. If the property is sold or foreclosed, the first mortgage gets paid first.
CLTV (combined loan-to-value): Your first mortgage balance plus the new line, divided by the property’s value. On a rental with no mortgage, the same math is plain LTV.
Borrowed funds: Cash that came from a loan rather than your savings. A purchase lender decides whether borrowed cash counts toward the down payment, the closing costs, or reserves.
Seasoning: A waiting period a lender requires after a purchase or refinance before another loan against the property is allowed.
Draw period: The stretch when you can take money from the line. On this program it is 5 years, with interest-only payments on the drawn balance.
Do Banks Offer a DSCR HELOC?
Rarely, and the better question is which type of lender writes this loan. Retail banks tend to build their home equity products around the owner’s own residence and personal income. A line on a rental, qualified on the rental’s rent, usually comes from a non-bank lender that sells through brokers.
That is why a list of bank names will mislead you. The lenders that write this depend on the state, the property type, your credit profile and how much equity sits in the rental. A mortgage broker with several wholesale lenders can match the file to the program that fits. Lendmire is a broker, not a lender. It arranges these lines through select wholesale lenders, and those lenders review and approve each file.
The product itself is simple to describe. It is a revolving line on a one-to-four-unit rental you keep. It qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The lender does not calculate your personal income, so there are no W-2s or pay stubs in the file. The LLC that holds the rental can stay on title, and the members sign as guarantors. For the bigger picture on how these loans work, see the complete DSCR loans guide.
How the Line Is Built
Start with structure, because it explains everything else. The line is a standalone second lien behind your existing first mortgage. If the rental has no mortgage, it is a standalone first lien. It is never a third lien, and it is never a line on your own home or a second home.
The coverage test
The lender needs a minimum DSCR of 1.10x. The test divides gross monthly rent by a qualifying payment. That payment is fully amortizing, covers the entire credit limit rather than only what you draw, and uses a stress rate above the starting rate. Taxes and insurance are not part of it. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Rent is the lesser of the appraisal’s market rent and the lease, unless three months of receipts support a lease above market. A lease must be in place. A two-to-four-unit property can have at most one vacant unit. On a second lien, confirm on the file how the lender treats the first-mortgage payment, because the lender’s own coverage calculation governs.
The leverage tiers
Through select programs, the ceilings look like this, subject to underwriting:
- Second lien: up to 70% CLTV at a 720 score or better, on lines of $50,000 to $500,000. Below 720, there is no second-lien option.
- First lien, lines up to $500,000: up to 75% LTV at 740 or better, and up to 70% LTV from 700 to 739.
- First lien, lines above $500,000 (up to $1,000,000): up to 65% LTV at 720 or better. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Some files take a lower ceiling. A declining-market flag lowers it by 5 points, for example. These are ceilings, not offers.
Draws, valuation and credit
At least 80% of the line is drawn at closing, and the closing draw is never less than $50,000. Later draws are at least $5,000 each. After the 5-year interest-only draw period comes a 25-year repayment period, with a 30-year maturity and a variable rate.
Lines up to $400,000 use an automated valuation with a property inspection report, or a full interior appraisal. Larger lines need a full interior appraisal. Appraisal waivers are not accepted. The line itself requires no reserves and no cash to close, though a separate purchase lender may set its own reserve rules. It also asks for no 30-day mortgage late in the last 12 months and 48 months since any bankruptcy, foreclosure, short sale or deed-in-lieu. One borrower can hold at most 5 loans or $2,500,000 with the program.
The Two-Gate Sequence
Two separate lenders have to say yes, and the order matters. Run it like this:
1. Ask the purchase lender first. Find out whether it accepts borrowed funds, for which buckets, and whether it caps the borrowed share. Do this before you spend time on the line.
2. Qualify and close the line. The source rental has to meet the coverage test, the valuation path and the seasoning rule. The draw lands in your own account.
3. Keep the paper trail. Save the line agreement, the draw record and the transfer into the account you will use at closing.
4. Contract and close the purchase. The purchase loan has its own leverage tier, so the line only changes where your cash comes from.
The line also cannot fund the property it sits on. It is secured by a rental you already own, and it never closes alongside the purchase. Your new property would have to be bought first and held before it could support a line of its own.
What Counts as Borrowed Money?
The purchase lender decides, and it decides separately for each bucket. Some programs cap the borrowed share. Strict overlays want part of the down payment to come from your own unborrowed cash.
| Bucket | Typical network treatment | What to confirm |
|---|---|---|
| Down payment | Often accepted | Any cap on the borrowed share |
| Closing costs | Often accepted | Same rule as the down payment |
| Reserves | Often excluded | Whether unborrowed cash is required |
Nasdaq notes that lenders generally want a larger down payment on an investment property than on a primary home. That makes the gap bigger, and it is the reason investors look for a line in the first place. Treat every row in the table as a question for the purchase lender, not as a promise.
Worked Example: Two Payments, One Rent Stream
Run the numbers on an investor with a paid-off rental that qualifies for a first-lien line. The investor draws at closing, moves the cash into a personal account and uses it as the down payment on a second rental. Every figure here is a modeled assumption.
Say the new rental clears roughly 1.25x on its own purchase loan. That is the DSCR the purchase lender tests, and the line’s payment is not part of that math. A larger down payment shrinks the purchase loan and can lift the ratio.
Your real cash flow tells a different story. Both the purchase payment and the line payment now sit on rent from two properties. Add them together, and the true coverage of your whole portfolio can drift toward 1.0x or below even though the purchase file looked comfortable. The lender’s ratio is a property test. It does not tell you whether the stack is affordable.
The quick test is simple. Add the line’s payment to the new loan’s payment, and divide the combined rent from the properties carrying both by that total. If the answer is thin, size the draw down or bring in more cash of your own.
A conventional, income-qualified loan works differently. There the line’s payment counts in the borrower’s debt-to-income ratio. Do not carry that rule over to a DSCR purchase file.
A fully borrowed down payment
A fully borrowed down payment can stall a purchase file on its own, even when the rent coverage is strong. Some programs want a slice of the down payment from unborrowed funds. A purchase lender that refuses borrowed cash for the down payment leaves you three choices: bring your own cash, pick a program that accepts it, or shrink the purchase.
Reserves
Cash that funded the down payment may not count as reserves for the purchase lender. Reserves and the down payment are separate gates, so clearing one does not clear the other.
How long you must own the source rental
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). A cash-out refinance on the rental restarts the first clock, so sequence your moves with that in mind.
Properties the lane does not cover
Rural-designated property, row homes, condotels, commercial or agricultural property, leaseholds, land trusts, age-restricted communities, mixed-use, modular and log homes, and land contracts are outside it. So is a property listed for sale in the prior 2 months or one with a solar lien. Single-family homes, townhomes, PUDs, two-to-four-unit properties and condominiums are eligible property types. Lots up to 10 acres also qualify. Foreign nationals and ITIN borrowers are not eligible.
A line on your own home
A primary-home line is a different, owner-occupied product, and this program is never offered on an owner-occupied home. The CFPB’s HELOC booklet says a plan’s terms may prohibit renting your home to others. It also says that if you sell the home, you generally must pay the line off in full right away. Check both points before you plan around a primary-home line.
DSCR HELOC vs Other Ways to Fill the Gap
Yahoo Finance notes that homeowners can tap primary-residence equity for a down payment on an investment property if they have enough equity. That route is reviewed around personal income and debts. The rent-based line qualifies the rental instead. Here is how the options compare.
| Option | Reviewed on | Main tradeoff |
|---|---|---|
| DSCR HELOC on a rental | The rental’s rent | Rental is the collateral |
| Home equity line on your own home | Personal income and debts | Your home is the collateral |
| DSCR cash-out refinance | The rental’s rent | Replaces your first mortgage |
| Your own cash | Nothing to qualify | Uses up your liquidity |
The cash-out refinance is the main alternative if you do not want a second payment alongside your existing first mortgage. It replaces that mortgage instead of sitting behind it.
Cash has one real advantage: nothing to qualify. Against that, Nasdaq notes a HELOC lets a buyer hold on to cash instead of spending it on the down payment. That liquidity has a price, which is a second payment and a second lien.
How to Shop Without a Bank List
Shop by lender type and by fit. Ask these questions of any purchase lender and any line lender before you commit:
- Does the purchase program accept borrowed funds for the down payment, and is the borrowed share capped?
- Do closing costs and reserves follow the same rule?
- Does the line lender treat my rental as eligible, and which valuation path applies at my line size?
- How does the lender’s coverage calculation treat the first-mortgage payment on a second lien?
- What documents does the purchase lender want to see for the draw?
A broker can ask these on your behalf across several wholesale lenders. The best program for your situation turns on the property type, your credit tier, your equity and how much of the purchase price you are trying to cover. Come prepared with the lease, your entity documents if an LLC holds title, the first mortgage statement and a clear target for the draw.
The Risks Are Real
A line against a rental puts that rental at stake. Benzinga says a HELOC on an investment property risks foreclosure on that property and adds to your total debt. The CFPB says a HELOC lets you borrow repeatedly against home equity, and that falling behind could cost you the home.
Stacked debt is the practical risk. A purchase financed close to its full price, with the down payment borrowed against another rental, leaves little room if rents soften or a unit sits vacant. The variable rate on the line adds a moving part. Size the draw so both payments stay comfortable on rent alone.
Tax treatment can depend on how the funds are used and how the property is held; borrowers should keep clear records and speak with a qualified tax professional before relying on any deduction.
Frequently Asked Questions
Do big banks offer a DSCR HELOC?
Rarely. Most large retail lenders write home equity lines on an owner-occupied home and qualify them on personal income. A line on a rental, qualified on its rent, usually comes from a non-bank lender that sells through a broker. Lendmire arranges this line through select wholesale lenders in 15 of its 16 licensed states, every licensed state except Tennessee, subject to underwriting.
Will a DSCR purchase lender accept HELOC money as my down payment?
It depends on the purchase program. Across Lendmire’s wholesale network, borrowed funds are often accepted for the down payment and closing costs and often excluded from reserves. Some programs cap the borrowed share, and strict overlays want part of the down payment unborrowed. Ask before you draw.
Does the HELOC payment lower my DSCR on the purchase?
No. On a DSCR file, the ratio is property-level: the new rental’s rent against the new loan’s payment. The line’s payment still hits your real cash flow, though, so test both payments against rent before you buy.
How soon after buying a rental can I open a line on it?
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). A cash-out refinance on the rental restarts the first clock. Eligibility is subject to underwriting.
Can I use a line on one rental to buy another through my LLC?
Often yes, subject to program terms. The LLC can hold title to the source rental, and its members sign as guarantors. The borrowers on the line need not be the borrowers on the first mortgage. The purchase lender then reviews its own entity and documentation rules separately.
Next Step
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, and the team can walk through both gates before you make an offer on the next rental.
For current guidelines and terms, see Lendmire’s DSCR HELOC programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving landlords and real estate investors in 16 licensed states. DSCR home equity lines of credit on non-owner-occupied one-to-four-unit rentals are arranged through wholesale lending channels in 15 of those states (every licensed state except Tennessee); Lendmire brokers the line and the lender underwrites each application on the property’s rent, credit and leverage. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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. Nasdaq – How to use a HELOC for a down payment
3. Yahoo Finance – HELOC for a down payment
4. Benzinga – HELOCs on investment properties
5. CFPB
This article is part of Lendmire’s DSCR HELOC program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Banks That Offer a DSCR HELOC for Investors Funding a Purchase · Banks That Offer a DSCR HELOC for a Down Payment on Your Next Home · Banks That Offer a DSCR HELOC to Pull Equity From a Rental to Buy the Next Property
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.