The Quick Read: A refinance has no down payment, because the equity you leave in the rental does that job. A 1099 contractor typically is reviewed on about 12 months of bank statements instead of tax-return income, and an investment-property cash-out generally tops out near 75% LTV, subject to lender guidelines. The cash you take out can then become the down payment on your next rental.
- Equity is your down payment. On an investment-property cash-out, you generally leave at least 25% equity in the property.
- Your deposits tell the income story. Bank statement programs average 12 months of deposits and apply a lender-specific expense factor.
- Two limits apply at once. The lender checks the value cap and your qualifying income, and the smaller result sets your cash.
- Reserves still matter. Expect to show roughly 6 months of the housing payment in verified assets.
- The cash is just loan money. What it can do for you depends on the next purchase’s own leverage, income test, and reserves.
Key Terms Defined
Cash-out refinance: a new, larger mortgage that pays off the old one and hands you the difference in cash.
Equity: what the property is worth minus what you owe on it.
LTV (loan-to-value): the loan balance divided by the appraised value. A 75% LTV means the lender will lend up to 75 cents per dollar of value. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Seasoning: the waiting period a lender wants between buying a property and refinancing it. Many programs size a recent purchase on what you paid, not on a fresh appraisal.
Bank statement loan: a mortgage that is reviewed around documented income taken from your deposits, usually over 12 months, rather than on tax-return net income.
Reserves: liquid savings you hold after closing, measured in months of the housing payment.
Business-purpose loan: credit taken out mainly to run an investment, such as a non-owner-occupied rental, rather than for personal or household use.
DSCR loan: an investor product that looks at whether a property’s rent covers its own payment.
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 Oct 8, 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 Oct 8, 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.
Why a Refinance Has No Down Payment
The phrase down payment fits a purchase, not a refinance. When you refinance, you already own the property, so the question changes to how much equity must stay behind. Whatever the lender will not lend against is your cushion.
Most people searching this phrase mean one of two things. Either they want to know how much equity to leave in the rental when they pull cash, or they want to know whether this cash can fund the next rental. Both questions get answered below.
| Factor | Purchase | Rental Cash-Out Refinance |
|---|---|---|
| Your stake | Cash down | Equity left in place |
| What sets value | Contract price | Appraisal (or cost basis if recent) |
| Cash flow direction | You bring money | You receive money after payoff and costs |
| Leverage limit | Varies by lender | Around 75% LTV on an investment property |
| Reserves | Required | Required, about 6 months |
For comparison, owner-occupied files run on different ceilings. A primary-residence purchase or rate-term refinance can reach up to 90% LTV through select lenders. A cash-out on a primary residence or second home tops out at 80% LTV. A rental cash-out never gets those numbers. The rental ceiling is lower because lenders see more risk in investment property. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Which File Decides Your Loan: the Property or You?
A contractor with a rental can be underwritten in more than one way, and the choice changes what matters. Under a bank statement program, your deposits carry the qualification. Under a DSCR program, the rent against the payment carries it, and your personal income is not the focus. Across the wholesale network Lendmire works with, a contractor often keeps both options open and picks whichever fits the property.
| Situation | What carries the file | Do your 1099s matter? |
|---|---|---|
| Rental, strong rent coverage | The property’s rent | Not the main driver |
| Rental, deposits are your strength | 12 months of bank statements | Your deposits, not the forms themselves |
| Home you live in (cash-out) | Documented income | Yes, through deposits |
Lendmire’s complete DSCR loans guide explains the rent-coverage route in full. The rest of this article follows the bank statement route, where your own deposits do the talking.
How Underwriting Runs, Step by Step
Here is the sequence a bank statement rental cash-out follows.
1. The lender classifies the loan. If you take no meaningful cash back, it is a rate-and-term refinance. Once you pull real cash, it is a cash-out, and the lower leverage cap applies.
2. The eligibility screen. The lender confirms the property is a non-owner-occupied rental and an eligible type. It confirms how you hold title. It pulls credit.
3. The seasoning check. The lender counts how long you have owned the property. Inside that window, many programs size the loan on your cost basis, not on a fresh appraisal. This is lender policy, so it varies from program to program.
4. The appraisal. An independent appraiser sets value.
5. The two gates. The lender runs a value test and an income test. The value test is the LTV cap times the appraised value, minus your payoff. The income test asks whether your qualifying income, built from deposit averages, supports the new, larger payment. Whichever gate gives the smaller number wins.
6. Reserves. You show verified assets worth roughly 6 months of the housing payment.
7. Closing. The old lien is paid, closing costs come out, and the remainder goes to you.
Loan sizes in this lane typically run from $125,000 to $3,500,000, though each lender sets its own limits and every file is underwritten individually.
Worked Example: Run the Equity Math
These numbers are illustrative, shown as percentages of appraised value so no dollar figure is needed.
Say your rental appraises at 100% of value and the lender caps an investment-property cash-out at 75% LTV. The new loan can be no larger than 75% of value. Suppose you owe 50% of value today.
- Maximum new loan: 75% of value.
- Minus the old payoff: 50% of value.
- Gross room before costs: 25% of value.
- Closing costs and any holdbacks come out of that 25%.
What you hold at the end is your net cash. The 25% you leave in the property is the equity cushion that stands in for a down payment.
Now change one input. Say your payoff is 70% of value because you borrowed heavily to rehab. Your gross room is only 5% of value before costs. Costs can eat most of that, so the refinance may not be worth doing.
Next, the income gate. Say the value test allows a large loan, but your averaged deposits, after the lender’s expense factor, only support a smaller payment. The income test now binds. You get cash up to the smaller number, not the value cap.
That second case catches contractors off guard. Equity is only half the picture, and the other half is how the lender reads your deposits.
How 1099 Income Is Documented on a Bank Statement File
A 1099 contractor is usually treated as self-employed. A bank statement file is reviewed on documented income under the applicable program, subject to lender guidelines. The lender takes 12 months of business or personal bank statements, totals the deposits, and averages them. Each lender then applies its own expense factor to estimate what is actually yours to spend.
Three things shape the result.
- Business or personal statements. Some programs use business accounts, some use personal accounts, and some accept either. Mixing accounts can confuse the average, so keep deposits organized.
- Expense factors. Lenders differ here, and some give credit for an accountant-prepared ratio. Do not expect a universal formula.
- Lumpy income. Contractors often have uneven months. Averaging smooths this out, but a few large one-time deposits can be discounted.
One real advantage: write-offs that shrink your taxable income do not shrink your qualifying income the way they do on a tax-return file. The lender looks at deposits, not at net profit after deductions. Another point: many programs want a track record in the same line of work, and how long varies by lender. Someone newly self-employed should ask before applying.
Using the Cash as the Next Down Payment
This is the move most investors actually want. You pull cash out of rental A, then use it as the down payment on rental B.
Each purchase has its own rules. Rental B carries its own leverage limit, its own income test, and its own reserve requirement. On bank statement documentation, investment purchase leverage varies by lender. Investor-focused leverage guidance more often sits on the DSCR side, so a contractor planning several purchases often compares both lanes.
Also remember that every cash-out raises the loan on rental A. Your payment goes up, and the income test gets harder at each step. Chain-refinancing recycles equity, but it also stacks debt.
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.
Where the General Rule Breaks
You will live in it. A rental refinance counts as business purpose only when the property is a true non-owner-occupied rental. The CFPB’s Regulation Z exemption deems credit to buy, improve, or maintain a rental business purpose, but not if you expect to occupy the property for more than 14 days in the coming year. Cross that line and consumer rules can apply.
You will spend the cash personally. Business purpose follows the loan’s intended use, not only the collateral. If you plan to use cash-out proceeds for personal spending, the loan can look different to a lender. That is why lenders ask what the money is for and take a signed business-purpose declaration. A law firm’s analysis from Hunton makes the same point: business purpose does not mean exempt from every rule, and lenders face penalties for misclassifying a loan.
The disclosure regime depends on occupancy. An owner-occupied file, meaning a primary residence or second home, is a consumer mortgage, so TRID disclosures apply. A bank statement loan on a non-owner-occupied rental, short-term rentals included, is a business-purpose loan and is exempt from TRID. The Federal Register’s ability-to-repay rulemaking states that business-purpose loans fall outside the ability-to-repay rules and that investment-purpose loans are treated as business-purpose loans. Do not mix the two regimes in your head, because the property type decides which one you are in.
You bought recently. Seasoning is lender policy, not law. If you bought inside the lender’s window, expect the loan to be sized on your cost basis. A rehab does not necessarily restart that clock, but the starting point is typically the recorded deed.
The property is in an LLC. Many programs allow entity-held rentals, depending on program guidelines, but entity documents become part of the file.
It is a short-term rental. These can be treated more conservatively on leverage and documentation. 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.
The rental is vacant. Programs differ on how they treat a property between tenants. Some want a lease or a market-rent opinion in the file. Ask the lender before you list the property.
You want to cash out your own home instead. An owner-occupied cash-out on a primary residence or second home can reach up to 80% LTV, or 75% with an accountant-prepared expense ratio. That path underwrites you personally, and the proceeds can be used toward a rental down payment. It puts a lien on your home, though, so the stakes are different.
HELOC or Cash-Out: Which Suits a Contractor?
A home equity line borrows against your personal file. For a 1099 contractor, that can bring the income-documentation problem right back. A cash-out refinance replaces the first lien entirely, which can hurt if your existing loan has a favorable fixed term or a prepayment penalty.
| Factor | HELOC | Cash-Out Refinance |
|---|---|---|
| What it replaces | Nothing (adds a lien) | The existing first lien |
| Whose income is tested | Often yours, personally | Per the program: deposits or property |
| Risk to current loan terms | None | Old terms are lost |
| Cash amount | Often smaller | Often larger |
Lendmire’s comparison of a HELOC and a cash-out refinance for a rental down payment covers this decision in more detail. A related piece looks at a smaller HELOC versus a larger cash-out refinance when size is the real question.
Prep Checklist for a Contractor
1. Gather 12 months of statements for the account you plan to use. 2. Separate business deposits from personal ones, if you can. 3. Pull your title or vesting documents, and entity papers if the rental sits in an LLC. 4. Collect the current lease or a market-rent opinion. 5. Confirm your insurance on the property. 6. List verified assets and see whether they cover about 6 months of the new payment. 7. Order your payoff statement so you know where you stand on equity. 8. Decide what the cash is for, because the lender will ask. 9. Avoid moving large sums between accounts right before applying. 10. Talk to your tax professional before changing how you report or deduct anything.
Next Steps
Lendmire is a mortgage broker that arranges financing through select lenders in its wholesale network. Its consumer mortgage licensing covers 16 states, and it can tell you which lane fits your property. Qualification is subject to lender guidelines and credit approval. This is not a commitment to lend. You can reach the team at 828-256-2183.
This article is general education and is not legal or tax advice. Consult a qualified attorney or CPA about your own situation.
Frequently Asked Questions
Do I need cash at closing on a rental cash-out refinance?
Usually not, because closing costs typically come out of your proceeds. You do need to show reserves, which lenders commonly measure at roughly 6 months of the housing payment. Those reserves are savings you keep, not money you pay at closing.
Will my 1099s count as income?
On a bank statement program, your deposits matter more than the forms themselves. The lender averages about 12 months of deposits and applies its own expense factor.
How much equity do I have to leave in the rental?
On an investment-property cash-out, lenders generally cap leverage near 75% LTV, so you leave at least 25% equity in place. A lower payoff than that gives you cash room. A higher payoff leaves little or none after costs.
Can I do this if the rental is in an LLC?
Often yes, depending on program guidelines. Entity documents become part of the file, and the lender will still ask about how you use the proceeds. Ask before you transfer title, because moving a property between names can complicate seasoning.
What if I bought the rental recently?
Many programs size the loan on your cost basis during the seasoning window, not on a new appraisal. The window is lender policy, and it varies. A recent purchase with a big rehab is the case most affected.
For how equity extraction works on an investment 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
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB, Regulation Z §1026.3 Exempt transactions
2. Hunton, Beware of Business Purpose
3. Federal Register, Ability-to-Repay and Qualified Mortgage Standards Under Regulation Z
This article is part of Lendmire’s self-employed mortgage guides — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance for Investors Weighing a Bank Statement Loan · Rental Cash-Out Refinance vs Better-Terms Refinance on 1099 Income · Investment Cash-Out Refinance vs Bank Statement Loan for a First Rental
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.