The Quick Read: The new loan can only reach the program’s cash-out ceiling, and the PACE payoff comes out of that same ceiling, so every dollar of PACE you owe is a dollar of cash you do not receive.
- Cash-out on a standard investment rental tops out around 75% LTV across most of our network. That is the ceiling for the new loan, PACE included.
- PACE is usually cleared or itemized at closing. Treat the balance like any other lien being paid off, never as extra room.
- Rent coverage is a second test. If it caps the loan below 75% LTV, your cash shrinks again.
- Retiring PACE can lower the tax line in the payment, which may help coverage.
- Bring the PACE payoff statement up front. Surprises on the title search cost the most.
Picture a rental with solid equity, a first mortgage, and a solar or energy upgrade financed through PACE. You want cash out. The question is simple: how much is left after the payoffs?
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.
This guide walks the full path. First, what PACE is. Then how the cash number gets built, where the rule bends, and what you should decide before you apply.
What a PACE Assessment Actually Is
PACE stands for Property Assessed Clean Energy. It funds upgrades like solar panels, insulation, or efficient HVAC. You repay it through your property tax bill, not through a separate monthly loan payment.
That difference drives everything else. The balance is attached to the property, not to you. When the property is sold or refinanced, the assessment stays unless someone pays it off.
A PACE assessment is not the same as an ordinary solar loan. A solar loan secured by the equipment is a different instrument. One real-estate agent’s blog, the Chris Kennedy Team, draws the same line: the solar loan is secured by the equipment, while PACE is collected through taxes and sits ahead of the mortgage. That is a practitioner’s view, not a rulebook. It still matches how title companies sort these items.
So the first job on any file is identifying what you actually have. Is it a tax assessment collected with the bill? Or is it an equipment loan or a fixture filing? The answer changes the treatment.
How the Cash Number Gets Built
The cash you receive is the leftover room under the loan ceiling after every payoff. The ceiling comes first. Everything else subtracts from it.
On a standard rental, cash-out refinance tops out around 75% LTV across most of the network. LTV means loan-to-value: the new loan as a percentage of the appraised value. Select programs vary, and short-term-rental collateral is lower, around 70% on a cash-out. Subject to lender guidelines, the 75% line is the one to plan around for a long-term rental.
Here is the waterfall, step by step:
1. Start with the appraised value. The appraisal sets the ceiling.
2. Multiply by the cash-out LTV cap. That gives the maximum new loan.
3. Subtract the first mortgage payoff, including the interest that accrues up to the payoff date.
4. Subtract the PACE payoff.
5. Subtract closing costs, escrow setup, and any other liens.
6. What remains is your cash.
Notice what PACE does here. It competes with your cash for the same room. The cap does not grow to make space for it.
A Worked Example in Percentages of Value
These inputs are modeled assumptions, not market data. Use them to see the shape of the math.
- Appraised value: 100%.
- Maximum new loan at a 75% cash-out ceiling: 75% of value.
- First mortgage payoff: 45% of value.
- PACE payoff: 8% of value.
- Closing costs and escrow setup: 3% of value. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Cash to you: 75 − 45 − 8 − 3 = 19% of value.
Now remove PACE from the same picture. The cash would be 27% of value. The assessment took roughly a third of your potential proceeds.
Now stretch it. Say the PACE balance is 25% of value. The math is 75 − 45 − 25 − 3 = 2% of value. Barely anything. At a balance a little higher, the payoff does not fit under the cap at all, and the deal does not close as a cash-out.
That is the core idea. Two equal-sized equity positions can produce very different cash outcomes, depending only on the PACE balance.
When Rent Coverage Binds Before Equity Does
Equity is only one test. The second is DSCR, the debt service coverage ratio: the property’s monthly rent divided by the full monthly payment on the new loan. That payment covers principal, interest, taxes, insurance, and any HOA dues, a bundle called PITIA.
The standard programs we place files with set the minimum DSCR at 1.00. Stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Either way, the lender sizes the loan to whichever test is tighter.
Run a second modeled case. Same property, same payoffs: first mortgage at 45%, PACE at 8%, costs at 3%. But the rent only supports a loan of about 60% of value at the coverage the program wants. Cash to you: 60 − 45 − 8 − 3 = 4% of value. Equity said 75%. Rent said 60%. Rent wins.
Here is where PACE helps a little. While the assessment stays on the property, it raises the tax line that feeds the payment. Retire it at closing and that line drops. A lower payment lifts the coverage ratio. It may nudge the coverage-limited loan size up, though the lender’s review decides. Tax treatment varies; consult a qualified professional.
One caution on language. Clearing 1.00 does not mean the rental produces positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.
What Happens to a PACE Lien at Closing
Expect the PACE balance to be paid off or, at minimum, itemized and documented. Lenders in a DSCR network set their own policy, so the treatment is not uniform. The practical expectation is the same: clear it, or get its position confirmed in writing.
Why does it matter so much? Because of priority. PACE is collected like a tax, so it generally ranks ahead of a mortgage. The Federal Housing Finance Agency says agency policy bars buying a mortgage on a property with a first-lien PACE loan. It also notes that some PACE programs are structured as a secondary lien behind the mortgage. The point for you: a new lender sees an assessment that could jump the line, and it wants that settled.
There is a practical danger too. If the assessment goes unpaid through the tax bill, a foreclosure can follow even when the mortgage is current. A new lender does not want to inherit that risk.
Agency Rules Are Contrast, Not Your Rulebook
Agency loan guidelines do not govern DSCR loans. DSCR loans are private, non-agency products. They are useful only for seeing why the market treats PACE as a lien to be addressed.
| Topic | Agency contrast | DSCR network |
|---|---|---|
| Binding on your file? | Only on agency loans | Not applicable |
| PACE priority | Often first-lien | Document lien type |
| Payoff requirement | Required with enough equity | Varies by lender |
| Who sets the rule | Agency selling guide | Each program’s guidelines |
For reference, Fannie Mae’s selling guide says borrowers with enough equity must pay off PACE as a condition of a new agency mortgage. A DSCR lender has no such rulebook, which is exactly why asking early matters.
Key Terms Defined
PACE assessment: A financing arrangement for property upgrades that you repay through your property tax bill, with the balance attached to the property.
DSCR: The debt service coverage ratio, which is monthly rent divided by the full monthly payment on the loan.
LTV: Loan-to-value, the loan amount as a percentage of the appraised value.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation used in the coverage calculation.
Payoff statement: A document from the PACE administrator showing the exact amount needed to clear the assessment on a given date.
Super-lien: A lien that ranks ahead of a first mortgage, which is how PACE is often described.
Seasoning: The ownership period a lender wants before it allows a cash-out, about 6 months on most files, measured from title recording.
Net proceeds: The cash left over after every payoff, cost, and escrow item comes out of the new loan.
Where the General Rule Bends
PACE sits behind the mortgage. Some programs record the assessment as a secondary lien. Priority depends on the state and the specific program, so the title work has to document it. This is the one case where the lien may not need to come off, though the lender still decides.
The balance is too big for the equity. If the PACE payoff does not fit under the 75% cap after the first mortgage, a cash-out cannot work as drawn. The options are paying PACE down with cash first, waiting while the balance amortizes, or looking at a different structure. We lay those out in the decision path below.
Payoff timing and the tax roll. If you pay off after the year’s assessment has already gone to the tax collector, that year’s installment may not be included in the payoff. It still comes due with the property taxes. Ask the administrator what the statement covers.
A payoff that returns no cash. Does a refinance that only retires the old mortgage and PACE count as a cash-out? Some lenders treat a no-cash-back payoff as a rate-and-term refinance. On an investment property, rate-and-term ceilings run higher than the cash-out cap, up to 85% LTV on select programs. But lenders define cash-out differently, so confirm how your file will be labeled before assuming the higher number. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Other instruments. Ordinary solar loans, equipment liens, and fixture filings are not PACE. They are handled as separate payoff items, with their own paperwork.
Commercial PACE. This guide covers residential-style assessments on rentals. Commercial PACE is a separate animal. Check it separately with the lender.
Rental held in an LLC. The lien follows the property, not the owner. Whether the loan can close in an LLC is subject to lender program eligibility, and the PACE treatment does not change because of the entity.
Ineligible property types. Manufactured homes, log homes, and barndominiums fall outside these DSCR programs, with or without a PACE lien.
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.
The Numbers That Decide the Outcome
Several inputs interact. Know them before you apply.
- PACE balance versus equity. This sets how much room is left after payoffs.
- The cash-out ceiling. About 75% LTV on a standard rental, lower on short-term-rental collateral. How Much a Short-Term Rental DSCR Cash-Out Lends When Bookings Drop covers that variation.
- Appraised value. A soft appraisal lowers the ceiling and the cash with it.
- Seasoning. Recently bought or recently financed? About 6 months of ownership from title recording is the common expectation.
- Coverage on the new payment. Rent against the full PITIA, with PACE either gone or still in the tax line.
- Credit. A 620 floor exists in parts of the network, and most programs want around 660. A score of 700 or higher unlocks the strongest leverage tiers.
- Reserves. Commonly around 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. Reserves vary by lender, leverage, and loan size.
- Loan size. Standard programs reach up to $3,000,000.
Notice how a larger down payment or more equity helps. It lowers the monthly payment and can lift the coverage ratio. But it never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
What Your Options Look Like, by PACE Size
The decision depends on how big the balance is compared with the room under the cap. Here is the shape, using the modeled example above, where roughly 27% of value is available before any PACE payoff.
| PACE balance vs. room | What it looks like | Next step |
|---|---|---|
| Small (a few % of value) | Cash shrinks slightly | Proceed, pay off at closing |
| Moderate (about a third of room) | Cash drops noticeably | Compare against holding off |
| Large (most of the room) | Little cash left | Consider paydown or waiting |
| Larger than the room | Payoff does not fit | Pay down first, or restructure |
Hold that against your own goal. Maybe you want cash to buy the next rental. If the payoff leaves only a sliver, the refinance may still make sense as a way to exit the assessment. But it is no longer a cash-out strategy.
Paying PACE off in a refinance can be a sensible use of equity, since these assessments can carry high effective costs. Whether it is right for you depends on the numbers. Run your own comparison of what the assessment costs you each year against what the refinance costs.
Closing the File: The Order That Works
Do the PACE paperwork first. It is the item most likely to hold up the rest.
1. Request the payoff statement from the PACE administrator. Ask about early-payoff fees or minimums, and what the statement does and does not cover for the current tax year.
2. Order title. The search should show the assessment, its recorded date, and its priority.
3. Confirm the lien type with your broker, so the lender sees the right instrument from the start.
4. Get the appraisal. Single-unit rentals typically use the 1004 with the 1007 rent schedule. Two-to-four-unit properties use the 1025.
5. Build the waterfall with the payoff in it, and confirm the cash figure before you commit.
6. Obtain the release. After funding, title needs the administrator’s release or satisfaction, and the assessment must come off the tax roll.
Flag PACE early. It can sit quietly on the tax certificate and surface only at the title search. Nobody likes that conversation at the last minute.
Myths Worth Dropping
“It’s just another loan.” It is a tax assessment attached to the property. That is why it behaves differently from a mortgage.
“PACE moves cleanly to any new lender.” It can legally stay with the property. A new lender may still insist on payoff.
“Agency rules apply to my DSCR loan.” They do not. Each DSCR program sets its own policy.
“A current mortgage protects me.” Not if the assessment goes unpaid through the tax bill.
“All solar financing is PACE.” No. Check the document, not the label on the sales brochure.
Proceed, Pay Down, or Wait
Think about it as a three-way choice.
- Proceed when the PACE balance is small against the available room and the cash left still serves your purpose.
- Pay down first when the balance eats most of the room. Put cash against PACE, then refinance with a larger share of proceeds going to you.
- Wait when seasoning, appraisal, or coverage is the weak link. Time can fix seasoning. It can also amortize the assessment.
The refinance exits an expensive assessment, but it also shrinks the cash you came for. Which matters more is your call, and the waterfall tells you the price of each.
Frequently Asked Questions
Can a DSCR cash-out refinance pay off a PACE assessment?
Yes, in most structures the payoff comes out of the loan proceeds at closing. The administrator provides a payoff statement, title confirms the lien, and a release follows. Treatment varies by lender, so confirm yours before you rely on it.
Can PACE stay in place on a DSCR cash-out?
It sometimes can, but you should not count on it. If the assessment is documented as a secondary lien, a lender may allow it to remain. If it ranks first, expect payoff. Either way, the balance affects the tax line used in coverage.
Does the PACE payoff count as cash-out or rate-and-term?
It depends on the lender and on whether any cash comes back to you. A payoff that returns no cash is sometimes handled as a rate-and-term refinance, which carries a higher ceiling on select programs. If cash comes back, the 75% cash-out ceiling on a standard rental applies.
Does the LLC change how PACE is treated?
No. The assessment follows the property. Whether the loan can be made to the LLC depends on program terms, but the lien works the same either way.
What if I would rather sell than refinance?
The assessment generally has to be addressed at sale too, since a buyer’s lender will want it settled. Ask the administrator for a payoff figure either way. It lets you compare a sale against a refinance with real numbers.
Where to Go From Here
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. The brokerage arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C., and every file is reviewed individually. For the bigger picture on how these loans work, see the complete DSCR loans guide.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
As a non-QM mortgage broker (NMLS# 2371349), Lendmire facilitates DSCR investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income instead of personal income documentation, subject to lender guidelines, serving LLC-structured portfolios and self-employed borrowers who don’t fit conventional boxes. A two-time Scotsman Guide Top Mortgage Workplace (2025, 2026).
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References
1. Chris Kennedy Team, Solar Panels, PACE Liens and Your Mortgage
2. FHFA Statement on Super-Priority Liens
3. Fannie Mae Selling Guide, PACE Loans (contrast only)
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: Can an Investor Cash Out More With DSCR Than a Conventional Loan? · Does a Rental’s DSCR Cash-Out Survive a Low Appraisal? · Hard Money Cash-Out Refinance vs DSCR Cash-Out Refinance on a Free-and-Clear Rental
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.