The Quick Read: A DSCR HELOC is a revolving line on a rental you already own, qualified on the rent instead of your personal income. The cash you draw becomes the down payment on your next purchase. It is never closed with the purchase and never placed on the property you are buying. The purchase itself needs its own separate loan.
- Coverage must reach 1.10x on a stress payment over the whole line, subject to underwriting.
- Second-lien lines reach 70% CLTV at a 720 score or better; first-lien lines on a paid-off rental reach 75% LTV at 740 or better.
- A lease must be in place, and the rental needs seasoning.
- At least 80% of the line is drawn at closing, so it suits a real down payment, not a small cushion.
- Offered in 15 of Lendmire’s 16 licensed states, every licensed state except Tennessee. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Which “DSCR HELOC” Do You Mean?
The term gets used for three different things. This article covers the first one.
| Product | Collateral | Qualified on |
|---|---|---|
| DSCR HELOC | Rental you own | Rent coverage |
| Personal HELOC | Your own home | Income, credit, DTI |
| Bridge, then refinance | Varies | Varies |
A personal HELOC on your residence is a consumer product reviewed on your income and debts. A DSCR HELOC is a business-purpose line secured by a non-owner-occupied one-to-four-unit rental. It is never offered on an owner-occupied home or a second home. Lendmire is a broker: it arranges the line through a wholesale lender in its network, and the lender underwrites and approves.
Key Terms Defined
DSCR: Gross monthly rent divided by the qualifying payment.
Qualifying payment: A fully amortizing payment on the entire credit limit, tested at the start rate plus 2 percentage points. It is a stress test, not what you will owe.
CLTV: The first mortgage balance plus the new line, divided by property value. It applies to second liens.
LTV: Loan balance divided by value. It applies to a first lien on a rental with no mortgage.
Seasoning: How long you have owned or financed the rental before the line is allowed.
Lien position: Whether the line sits behind your existing mortgage (second) or alone (first).
How the Product Is Built
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 a third lien. That structure is the point. You reach equity without refinancing a first mortgage you may like, and you keep your personal income file closed.
Title can sit in an LLC, subject to lender program eligibility. The members sign as guarantors. A title holder who is not a borrower signs a non-borrowing owner acknowledgment and the security instrument. The borrowers on the line do not have to match the borrowers on the first mortgage.
Terms are the same shape on every file: a 5-year interest-only draw period on the drawn balance, then a 25-year fully amortizing repayment period, with a 30-year maturity. The rate is variable. Rate and pricing terms come with the lender’s disclosures.
For the wider picture of how rent-qualified products work, Lendmire’s complete DSCR loans guide covers the basics.
How Underwriting Treats the File, Step by Step
The sequence below is how the deal works from equity to cash in hand.
1. Pick the collateral. It must be a rental you own, with a lease in place. A two-to-four-unit property may have at most one vacant unit.
2. Check the equity room. Add the first mortgage balance and the proposed line, then divide by appraised value. The ceiling is 70% CLTV on a second lien. When the room left after the first mortgage is under $50,000, the line does not fit, and a cash-out refinance is the usual alternative.
3. Run the coverage test. Divide rent used for lender review by the stress payment on the full limit. It must reach 1.10x.
4. Check credit. The minimum is 720 on a second lien and 700 on a first lien, taken from the lender’s own report. There are no reserves and no cash to close.
5. Order the valuation. Lines up to $400,000 use an automated valuation with a property inspection report, or a full interior appraisal. Lines above $400,000 need a full interior appraisal. Appraisal waivers are not accepted.
6. Close and fund. At least 80% of the line is drawn at closing, never less than $50,000. That draw is your down payment money.
7. Close the purchase separately. The new property gets its own loan, which can be a DSCR purchase loan judged on the new property’s rent.
Rent is the lesser of the appraisal’s market rent and the lease, unless three months of receipts support a lease above market. The qualifying payment is principal and interest on the full line. Taxes and insurance are not in it.
The coverage test runs on the whole limit, so drawing less does not improve the number. Rent does not grow when the line does, so a bigger line only makes the test harder. Shrinking the requested line lowers the stress payment, and the same rent then produces a higher ratio.
On a second lien, the file also has an open question: how the first-mortgage payment enters the coverage calculation. Confirm on the file how the lender treats it, because the lender’s own coverage calculation governs.
Requirements at a Glance
| Requirement | What is tested |
|---|---|
| Coverage | 1.10x on full-limit stress payment |
| Credit | 720 second lien, 700 first lien |
| Mortgage history | No 30-day late in 12 months |
| Reserves | None required |
| Exposure | 5 loans or $2,500,000 per borrower |
Mortgage history also carries a bankruptcy rule: 48 months since a bankruptcy, foreclosure, short sale or deed-in-lieu. All figures are ceilings and floors through select programs, subject to underwriting.
Where Files Stall
Seasoning comes first, and it is two separate six-month clocks. 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). Pull the settlement statement before you plan the purchase.
The lease is the second gate. A vacant property or one with no lease cannot use the rent-based test. The listing history is the third: a rental listed for sale in the prior 2 months is excluded, and a withdrawn listing can still count.
Entity paperwork rounds out the list. Guarantor signatures, the non-borrowing owner acknowledgment and the vesting documents all need to line up before the file goes in.
Leverage Tiers
| Lien | Credit | Maximum | Line size |
|---|---|---|---|
| Second | 720+ | 70% CLTV | $50,000–$500,000 |
| First | 740+ | 75% LTV | Up to $500,000 |
| First | 700–739 | 70% LTV | Up to $500,000 |
| First | 720+ | 65% LTV | Above $500,000 to $1,000,000 |
A borrower who keeps a first mortgage can only take a second lien, with its 720 floor. A first lien exists only on a rental with no mortgage. Below 720 there is no second-lien tier.
Overlays can pull the ceiling down. A declining-market flag lowers it 5 points, and Philadelphia lines carry a ceiling 10 points lower. Hazard insurance must cover both liens, with flood coverage where required.
What Property Qualifies
Eligible: single-family, PUD, townhome, two-to-four units, warrantable and non-warrantable condominiums, and lots up to 10 acres.
Not eligible on this lane: rural-designated property, row homes, condotels, commercial or agricultural property, leaseholds, land trusts, age-restricted communities, hobby farms, modular and log homes, land contracts, mixed-use, a property with a solar lien, and anything listed for sale in the prior 2 months.
Borrowers must be US citizens, permanent residents, or non-permanent residents with a Social Security number. Foreign nationals and ITIN borrowers are not eligible.
Two Separate Approvals
The line and the purchase loan are judged independently.
| Item | The line | The purchase loan |
|---|---|---|
| Judged on | Existing rental’s rent and equity | New property’s rent |
| Collateral | Rental you own | Property you buy |
| Closes | On its own | On its own |
Many purchase lenders have their own rules on borrowed down-payment funds, and a few treat them differently for down payment than for reserves. Ask the purchase lender before you draw. Equity also does not pool: each line attaches to one property.
A Worked Example
These inputs are modeled assumptions for illustration, not market data, and the lender’s own calculation governs.
Say you own a rental with a first mortgage equal to 45% of its appraised value, and your credit score is 725. You request a line sized at 25% of value. Combined balances come to 70% CLTV, right at the second-lien ceiling for a 720 score or better.
The rental’s rent, the lesser of the appraisal’s market rent and the lease, runs against the stress payment on the full 25% line, unless three months of rent receipts support a lease above market. Assume that comes out to roughly 1.14x. That clears the 1.10x minimum with little room. If the lender wanted a larger line, say 28% of value, the stress payment would rise while rent stayed flat. The ratio would slip to about 1.02x and the file would miss. Shrinking the request is the fix.
At least 80% of the line is drawn at closing, so most of that 25% goes to the next purchase as down payment. Now run the new property. Assume it clears about 1.20x on its own DSCR purchase loan. Both tests pass. But add the line’s variable payment and the new loan’s payment on top of each other, and total cash flow across the two properties can run thin, even though each lender’s coverage test passed.
Coverage is a lender’s test, not a profit statement. Run total cash flow with every payment included before you draw.
When the Rule Breaks
- Rent below 1.10x. The file misses this program’s floor. Options include a smaller line, a DSCR cash-out refinance, a closed-end second, or a bank statement route.
- A small cushion only. The 80% first draw makes this a poor fit.
- A large one-time sum, or thin equity. A DSCR cash-out refinance usually serves better, especially when the first mortgage is not worth protecting.
- A recently bought, refinanced or listed rental. Not eligible for the line until the seasoning and listing rules above are met.
- Paid-off rental. A first-lien line is possible with a 700 score, but only up to 70% LTV; 75% LTV requires a 740 score or better.
- No rental yet. A first-time buyer has no collateral for this product.
- Equity in your home. That is a personal HELOC, a different product reviewed on your income and debts.
On that last one, a principal-residence line carries a federal right to cancel within three business days, as the CFPB explains. A business-purpose line secured by a rental generally does not.
Borrower count is another edge. The 10-property limit is an agency rule for conventional loans and does not apply to DSCR financing. This program’s own ceiling of 5 loans or $2,500,000 per borrower applies instead.
The Investor Decision in Practice
The trade is clear. You keep an appreciated rental and skip the agent fees and closing costs of a sale, but the cost is the equity in the original property. Both a line and a cash-out put an existing rental at risk to fund the new one.
A conventional bank line on a rental is judged on your credit, income and debts, and NerdWallet notes that the lender pool is smaller and borrowing limits lower than for a primary-home line. Availability moves too: one BiggerPockets thread shows a lender dropping investment-property lending. For investors with many mortgages or hard-to-document income, a rent-based line avoids that bottleneck.
Lendmire’s piece Where to Get a HELOC to Buy a Rental Using Equity From Another Property covers sourcing.
Before You Draw: Questions for the Purchase Lender
- Will borrowed funds count toward the down payment?
- Do they count toward reserves?
- Does the line payment enter the new loan’s coverage?
- What documents show where the money came from?
Frequently Asked Questions
Does the line payment count in the new property’s DSCR?
That depends on the purchase lender’s program. The line is judged on the rental that secures it, and the purchase loan is judged on the new property’s rent. Ask the purchase lender how it treats existing debt before you draw.
Can I open the line on the property I’m buying?
No. The line is never closed with a purchase and sits on a rental you already own. The new purchase gets its own loan.
How long must I own the rental first?
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).
Do I need tax returns or W-2s?
No. The file qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The lease, credit report, valuation and entity documents are still part of the file.
Does drawing less lower what I must qualify for?
No. The coverage test runs on the entire limit, so a partial draw does not change the number. Sizing the line smaller is what helps.
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. Every file is underwritten individually. This is not a commitment to lend.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges DSCR home equity lines of credit on rental property in 15 of its 16 licensed states (every licensed state except Tennessee) through wholesale lenders. The line is qualified on the rental’s rent rather than the owner’s personal income, and every line is subject to the lender’s guidelines and full underwriting. 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. CFPB – Can I waive my right to rescind
2. NerdWallet – HELOC on investment property
3. BiggerPockets forum – HELOC on investment property
This article is part of Lendmire’s DSCR HELOC program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR HELOC Requirements With Irregular Deposits · DSCR HELOC Requirements on One Rental to Buy the Next · DSCR HELOC Draw Requirements to Close on an Investment Property
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
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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.