The Quick Read: It depends on the rental you already own, because the line is sized on the property’s current value, your lien position and credit tier, and the rent it already earns, never on what the finished unit will be worth or rent for. Through select programs in Lendmire’s wholesale network, subject to underwriting:
- A second lien behind your existing mortgage reaches up to 70% combined loan-to-value (CLTV) on an investment property at a 720 score or better, on lines from $50,000 to $500,000.
- A first lien on a rental with no mortgage reaches up to 75% loan-to-value (LTV) at 740 or better and 70% at 700 to 739, on lines up to $500,000.
- Lines above $500,000, up to $1,000,000, sit at 65% LTV on an investment property at 720 or better.
- The ADU’s projected rent adds nothing to the coverage test, and the line is not a construction loan. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Lendmire is a broker. It arranges this program through a wholesale lender, and the lender approves the file.
Key Terms Defined
DSCR HELOC: A revolving line of credit on a rental you keep, qualified mainly on the rent the property earns rather than your personal income.
ADU (accessory dwelling unit): A second, smaller home on the same lot, such as a backyard cottage, a garage conversion, or a basement or attic apartment.
CLTV (combined loan-to-value): Your first mortgage balance plus the new line, divided by the property’s value.
Draw period: The stretch when you can borrow from the line and pay interest only on what you have drawn. On this program it lasts 5 years.
Stress payment: The payment the lender uses to test the rent. It is a fully amortizing payment on the entire credit limit at the start rate plus 2 percentage points. It is a test number, not what you actually pay.
What Sets the Limit (and What Doesn’t)
Three things set your limit: today’s property value, the leverage ceiling for your lien position and score, and whether the rent covers the stress payment. The ADU appears in none of them. The lender measures the property as it stands, subtracts what you owe, and checks that the line fits under the cap.
The sizing formula is short: value × allowed CLTV (or LTV), minus the balance of any existing mortgage. Then the line cap and the coverage test can lower the answer further. Whichever of these three limits is smallest controls.
This is not a quirk of one program. The Urban Institute lists a cash-out refinance, a home equity loan or line, and renovation financing as the main ways to pay for an ADU. It notes that none of the equity-based techniques consider the income the ADU will generate. Only renovation financing sizes against the after-repair value of the finished project.
Many investors expect a DSCR product to work differently, since rent drives the whole qualification. It does, but only the rent that exists on the day of the application. An ADU on paper has no lease, so it earns no rent.
Which Lien Position Do You Have?
Your lien position decides your ceiling more than anything else. This program writes a line only as a standalone second lien behind a first mortgage you keep, or as a standalone first lien on a rental with no mortgage. It is never a third lien.
| Your situation | Lien | Typical ceiling (investment property) |
|---|---|---|
| Rental with a mortgage, 720+ score | Second | 70% CLTV, lines $50K–$500K |
| Rental with a mortgage, 700–719 | None offered | No second-lien tier below 720 |
| Paid-off rental, 740+ | First | 75% LTV, lines to $500K |
| Paid-off rental, 700–739 | First | 70% LTV, lines to $500K |
| Paid-off rental, 720+, line above $500K | First | 65% LTV, lines to $1M |
These are ceilings, not offers. A declining-market flag on the property can lower the ceiling by 5 points. Every figure is subject to underwriting and the lender’s own review of the file.
Two details trip people up. A borrower who keeps a first mortgage can only take a second lien, so the 720 floor applies to them even though a first lien starts at 700. And a first lien exists only on a rental with no mortgage at all.
Two Worked Examples in Percentages
Run the numbers on a rental where the first mortgage sits at 55% of the property’s value and your score is 720 or better. The second-lien ceiling is 70% CLTV, so the line can reach about 15% of today’s value. That is the equity limit. The line also has to land between $50,000 and $500,000, and the rent has to clear the stress test on the whole line.
Now take a paid-off rental owned by someone with a 740 score. The first-lien ceiling is 75% of value on a line up to $500,000, so the equity limit is about 75% of today’s value. On a higher-value property, the $500,000 line size at that tier can bind before the percentage does. Ask for more than $500,000 and the whole line is tested at 65% LTV, so a bigger ask can shrink the answer you were hoping for. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Neither example counts the ADU. If the unit adds value once it is permitted, built and appraised, that value helps a later refinance, not this line. A panel presentation to the California Assembly from Urban Institute researchers recommends that underwriting give at least 50% credit for future ADU rent and appraise on an after-repair basis. That is a policy recommendation, not current practice on this program.
When the Rent Is the Limit, Not the Equity
A second ceiling sits behind the equity math: the coverage test. The rent must reach at least 1.10x the stress payment, where the stress payment is principal and interest on the entire credit limit at the start rate plus 2 percentage points. Taxes and insurance are not part of that qualifying payment.
The test uses the full limit, not just the amount you draw. So a larger line puts more weight on the rent. Hold the rent steady and double the line, and the line’s piece of the payment roughly doubles while coverage falls. A rental with thin rent can run out of coverage long before it runs out of equity.
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 in place is required. On a two-to-four-unit property, at most one unit may be vacant.
On a second lien, the lender’s coverage calculation governs how the first-mortgage payment is treated. Confirm on your own file how the lender handles it, because that choice can move the ratio more than any other input. If the number lands below the floor, a smaller line is the first lever to try, since coverage and line size move in opposite directions.
Does Any ADU Rent Count?
Rent counts only after the ADU is permitted, built, finished and leased, and then it joins the main unit’s rent. Before that, it counts for nothing.
Three situations come up often:
- ADU on your own home. This program does not fit. The line is written only on a non-owner-occupied rental, never on your home or a second home.
- Unpermitted ADU. This is a valuation and legality problem rather than a lien problem. An unpermitted unit is hard to support as living space, so expect its rent to be left out and its value to add little.
- How the unit is counted. A detached cottage, a garage conversion and a basement apartment may be treated as another unit on the property or folded into one. Because the program covers one-to-four-unit properties and caps vacancy on two-to-four-unit properties, the lender’s classification affects both eligibility and coverage.
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 from an ADU.
How the Valuation Works
The value drives everything, so the valuation path matters. Lines up to $400,000 use an automated valuation with a confidence score of 85 or better, paired with a property inspection report. A full interior appraisal is the other option. Lines above $400,000 take a full interior appraisal. Appraisal waivers are not accepted.
For a property with an ADU already standing, the appraiser’s view of the unit affects the value you borrow against. If there are few comparable sales for detached units, the unit may add little. That is why a plan built on the finished value can disappoint even when the building goes perfectly. The Urban Institute makes the same point: with no ADU comparables, appraised value may barely move.
Property rules apply too. Rural-designated property, row homes, condotels, leaseholds, mixed-use property and any property with a solar lien are outside this lane. 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 listing for sale in the prior 2 months can also end the file.
The Draw Rules Shape an ADU Budget
At least 80% of the line is drawn at closing, and the closing draw is never less than $50,000. On the smallest lines, that means the whole line is drawn at closing. Later draws are at least $5,000 each.
This matters for ADU planning, because the first draw is large and arrives before any construction spending. You carry interest on that money from day one. The draw period runs 5 years interest-only on the drawn balance, followed by a 25-year fully amortizing repayment period and a 30-year maturity. The rate is variable.
A line can also be cut off. The CFPB describes the standard method, a percentage of appraised value less what you still owe on the mortgage, and its worked example uses 75% of a $100,000 home less a $40,000 balance. It also explains that a lender may stop further draws if the home’s value falls significantly. Treat the limit as a ceiling that depends on value, not a promise of the full amount for the whole draw period.
Other file basics apply, all subject to underwriting. Mortgage history needs no 30-day late payment in the last 12 months, and 48 months must have passed since a bankruptcy, foreclosure, short sale or deed-in-lieu. No reserves and no cash to close are required. Exposure is capped at 5 loans or $2,500,000 per borrower with the program. The LLC can stay on title, subject to lender program eligibility, and the members sign as guarantors.
DSCR HELOC vs. the Other Ways to Fund an ADU
Different tools size on different things, which is why one investor’s answer to how much can I borrow differs from another’s.
| Tool | Sized on | Counts future ADU rent? |
|---|---|---|
| DSCR HELOC | Today’s value, lien tier, rent | No |
| DSCR cash-out refinance | Value and rent of the finished property | Yes, once leased |
| Personal-income investment HELOC | Value and the owner’s income | No |
| Renovation or construction loan | After-repair value | Varies by program |
The DSCR HELOC keeps the first mortgage in place and the personal income file closed. The tradeoff is that it cannot see the project. If your first mortgage is small, a line may cover the build, and the cash-out refinance comes later. If the equity is thin, a renovation loan sized on after-repair value is the tool built for that job.
Agency programs count ADU rent narrowly. The Urban Institute cites a two-year rental history requirement for Fannie Mae, which means existing ADUs with a track record. Those rules do not govern this DSCR program.
The Exit Plan: Line, Build, Lease, Refinance
The usual sequence is simple on paper. You draw on the line, build the ADU, get it permitted and finished, and lease it. Then you refinance into a DSCR cash-out loan that counts the finished unit’s rent alongside the main unit’s rent, and that loan pays off the line.
Plan for the weak points. The refinance depends on the finished property appraising and renting as you expected. A cost overrun draws on the same equity, so keep a contingency inside your budget. If the line is also stretched against thin rent, you may have little room left for a second draw.
For deeper background on each side of this plan, Lendmire’s walkthrough on how an investment property HELOC works for an accessory dwelling unit covers the mechanics. The broader complete DSCR loans guide explains how the underlying qualification works.
Mistakes That Shrink the Number
- Budgeting from the finished value. Calculate value × CLTV minus liens, and leave the ADU’s future value out.
- Asking for more than $500,000 on a first lien. The ceiling drops to 65% LTV for the whole line.
- Ignoring the stress payment on the full limit. Coverage is tested on the whole line, not the drawn balance.
- Counting a score the program does not cover. A second lien needs 720, so a 700-719 borrower with a first mortgage has no second-lien tier.
- Planning around an owner-occupied home. This line is for non-owner-occupied rentals only.
- Starting with an ineligible property. A solar lien or a rural designation can end the file. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
This program is offered in 15 of Lendmire’s 16 licensed states, every licensed state except Tennessee. Other states have no program through Lendmire’s consumer licensing, though investors there can look at a DSCR cash-out refinance instead.
Frequently Asked Questions
Does the finished ADU’s value raise my borrowing limit?
No. The line is sized on the property’s value today, the leverage ceiling for your lien position, and the line cap. A unit that is only planned adds nothing. A completed, permitted ADU may support a higher appraised value on a later refinance, depending on comps and underwriter review.
Can I use a DSCR HELOC on a home I live in with an ADU?
No. The program is written only on non-owner-occupied one-to-four-unit rentals, never on your own home or a second home. Owners in that position often start with a personal-income equity line and move to a DSCR cash-out refinance once the property is a documented, leased rental.
What if my rent barely covers the test?
Shrink the line. The coverage test uses the stress payment on the entire limit, so a smaller line lowers the payment in the test. Rent is the lesser of the appraiser’s market rent and the lease, unless three months of receipts support a lease above market. Programs that review lower coverage exist, usually with different pricing and leverage.
Can I keep the property in an LLC?
Usually yes on an investment property, 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 a DSCR HELOC the right tool if equity is thin?
Often not. With a large first mortgage, a second lien at 70% CLTV may leave little room. A renovation loan sized on after-repair value, or waiting for the cash-out refinance on the finished unit, may fit better.
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. Details are subject to underwriting and are not a commitment to lend.
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.
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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. Urban Institute – Unleash Housing Supply: Allow and Finance ADUs
2. Urban Institute panelist deck (CA Assembly hearing)
3. CFPB – What You Should Know About HELOCs (booklet)
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 After a First Mortgage Modification? · How Much Can You Borrow on a DSCR HELOC on That Property? · How Much Can You Borrow on a DSCR HELOC for Investing in Mortgage Notes?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.