The Quick Read: On a paid-off fourplex, a rate-and-term refinance suits an owner who wants a new lien or title structure without taking cash, while a cash-out refinance suits an owner who wants to turn trapped equity into capital, and any cash returned at closing puts the file in the cash-out tier. Rent from all four units has to cover the new payment either way, and that test often decides the loan size.
- Any cash returned at closing makes the loan a cash-out, even when the building has no mortgage.
- Cash-out on a standard long-term rental tops out around 75% loan-to-value, with about 6 months of ownership expected first.
- Combined rent from all four units is tested against the new payment, so a bigger loan means thinner coverage.
- Clearing 1.00x means rent covers the payment. It does not mean the building cash flows.
- Whichever test binds first, value or rent, sets the loan amount.
Here is the honest answer. A paid-off fourplex has no loan to refinance, so the rate-and-term lane is narrow. It fits the owner who wants a lien in place, a move into an LLC, or a new structure, and who takes little or no cash. The cash-out lane fits the owner who wants capital for the next building, a renovation, or reserves. Each path runs on the same engine: the rent must cover the new payment. The real decision is how much debt you want on a building that carries none today.
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 15, 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 15, 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.
Side-by-Side
The table below uses typical ranges from select lenders in the wholesale network. Every figure is subject to lender guidelines, credit review, and property review.
| Factor | Rate-and-Term (no cash back) | Cash-Out |
|---|---|---|
| Review basis | Property rent vs. new payment | Property rent vs. new payment |
| Cash at closing | None, or close to none | Yes, any amount |
| Leverage ceiling (LTV) | Up to 85%, investment property | Up to 75%, standard rental |
| Seasoning | Lender-specific, usually lighter | About 6 months from title recording |
| Reserves | About 6 months PITIA; some waived | About 6 months; about 9 above $1.5M |
| Vesting | Individual or LLC | Individual or LLC |
Two notes on reading it. First, a rate-and-term refinance cannot return cash, so on a paid-off building that column fits only a small loan. Second, a short-term-rental fourplex follows different numbers. Cash-out on short-term-rental collateral tops out around 70%, against 75% on a standard long-term rental. 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.
Key Terms Defined
DSCR (debt service coverage ratio): Monthly rent divided by the full monthly housing payment. A result of 1.20x means rent is 120% of the payment.
PITIA: Principal, interest, taxes, insurance, and any HOA dues. This is the payment figure the rent is tested against.
LTV (loan-to-value): The loan balance divided by the appraised value of the property.
Seasoning: The waiting period a lender wants after you take title before it will lend against appraised value.
Reserves: Liquid funds, counted in months of PITIA, that you hold after closing.
Rate-and-term refinance: A new loan that replaces the old one without returning cash to you.
Cash-out refinance: A new loan that puts cash in your hands at closing.
Why Any Cash Means Cash-Out
The cash decides the label, not the payoff. A refinance that only retires an old lien and its costs is generally rate-and-term. A new loan that hands you money is a cash-out. A free-and-clear fourplex has no old lien to retire, so any proceeds count as cash-out.
That classification is lender policy, and no single national rule defines it for DSCR loans. The practical result is simple. Once cash comes back, the lower cash-out leverage tier and the seasoning rules apply.
It also means costs deserve planning. A small amount of cash back can flip the label. Whether financed closing costs stay inside the rate-and-term label depends on the lender, so ask before the appraisal is ordered.
Which Test Sets the Loan Size?
Two tests run side by side, and the lower result wins. The leverage test caps the loan at a percentage of appraised value. The coverage test caps it at what the rent can support. On a paid-off building, the whole new loan is proceeds. A larger loan raises the payment, so coverage drops as the loan grows.
Lenders usually test all four units together. A common convention uses the lower of the lease rent and the appraiser’s market rent for each unit, then adds the four. A vacant unit commonly uses the market rent from the appraisal. Details vary by program.
The appraisal gives both inputs from one report. It sets the as-is value for the leverage test and the market rent for the coverage test. A two- to four-unit property is typically reported on Form 1025, the small residential income property form listed in Fannie Mae’s Selling Guide. DSCR loans are not delivered to the agencies, so lenders simply borrow the form. The lender orders the appraisal, and the appraiser’s rent opinion drives the number, not your spreadsheet.
A modeled run where leverage clears and coverage fails
Run the numbers on a modeled fourplex. These are assumptions, not market data. The appraisal supports the full 75% on a cash-out of a standard long-term rental. At that loan size, rent covers PITIA at only about 0.90x.
The value test passed, but the rent test did not. Here are the paths a lender may review:
- A smaller loan. You choose a partial cash-out sized to land near 1.10x. You get less cash, and the building carries less debt.
- A sub-1.00 path. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted.
- A longer or interest-only structure. Extended terms and interest-only periods are available through select lenders. They can lift coverage on the same balance.
Choosing a loan below the maximum is a coverage dial, and many owners overlook it. Whether any path works depends on the lender, the credit profile, and the property review.
A modeled run on the rate-and-term side
Now flip it. You want no cash, only a new lien. The loan is small relative to rent, so coverage lands far above 1.00x. Qualifying is easy on the rent test. Reserves are often easier too. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived, while larger loans typically step up to about 9 months. The tradeoff is that you’ve put a lien on a building that had none, and you took nothing for it.
One vacant unit
Say one of four equal units sits empty. You lose a quarter of the rent. To hold 1.00x overall with three units paying, the full building needs about 1.33x coverage on paper. A lender using market rent for the vacant unit may not show that hit in the ratio. Your bank account will show it.
When Rate-and-Term Is the Better Fit
Rate-and-term fits the owner who does not need the money. That owner wants the structure, not the cash. These situations fit:
- You are moving title into an LLC. A new lien lets you vest the building in an entity, with a personal guaranty, subject to program terms.
- You want to keep leverage low. A small loan leaves heavy coverage and a building that stays nearly debt-free.
- Your coverage is thin. A modest loan clears the rent test when a large one would not.
- You want a lien in place for later. Some owners prefer the structure set up now rather than rushed during an acquisition.
The downside is plain. If you take no cash, you pay closing costs and add a lien for little gain. The strongest candidates have a clear reason beyond the loan itself.
When Cash-Out Is the Better Fit
Cash-out fits the owner who has a use for the equity that earns more than the debt costs. That means a next acquisition, a renovation that may support a higher appraised value depending on comps and underwriter review, or a reserve cushion for a larger portfolio. These situations fit:
- You have a deal waiting. Equity sitting in a fourplex earns nothing until it moves.
- Your rents are strong. A building that covers a large new payment with room to spare can support a bigger check.
- You are self-employed or hold many properties. The file is judged, not on a personal tax return. It qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
- You need to compare it against a sale. Lendmire’s piece Sell vs HELOC vs Cash-Out Refinance on a Paid-Off Rental covers that tradeoff.
Two cautions apply. Cash-out puts debt on a formerly debt-free asset. And if you cash out within the first year or two, check the prepayment penalty term, because it affects any plan to refinance again.
Credit matters on both sides. 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. Standard programs reach $3,000,000, and above $2,500,000 the network generally holds to 30-year fixed structures.
Coverage Is Not Cash Flow
Clearing the coverage test means rent covers PITIA. It says nothing about repairs, vacancy, management, utilities, or capital expenses. Those sit outside the calculation.
A fourplex that clears 1.20x on paper may feel tight once a unit turns over and a roof needs work. A smart stress test is to model the same building at a lower rent and see whether it still works. If you would be uncomfortable at 1.10x, size the loan smaller.
A larger down payment, or in this case a smaller loan, lowers the payment and can lift the ratio. It never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
If proceeds will count toward reserves, ask the lender up front. Treatment varies.
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.
Where the Rules Bend
Several edge cases change the answer on a fourplex.
A recent cash purchase. Inside the seasoning window, lenders often size the loan on your cost basis instead of appraised value. Some programs let a recent cash buyer take cash back sooner, capped at the lower of value-based leverage or documented cost. Ask about it before you assume it.
An owner living in a unit. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The CFPB’s rule on exempt transactions has separate tests for owner-occupied rental property, and a lender decides the loan’s purpose case by case. If you live in one of the four units, the file may leave the clean DSCR lane.
Personal use of proceeds. Cash-out files carry a business-purpose certification. If you plan personal spending, say so up front. Mixed-purpose proceeds can change how the file is treated. 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.
Five or more units. A fifth unit usually moves a building out of this lane and into commercial multifamily lending. That lending sizes on net operating income, which is a different calculation from residential rent over PITIA.
A short-term-rental fourplex. Expect a 640 or higher score and about 12 months of hosting history. The coverage floor is 1.00 on both a purchase and a refinance. The appraisal measures monthly long-term rent, so run a long-term floor case before leaning on short-term income.
Unit mismatch on the appraisal. If the appraiser pulls comps that don’t match your unit types, the file can stall. Flag your unit mix when the appraisal is ordered.
If you wonder how a conventional cash-out would compare, Lendmire’s piece DSCR vs Conventional Cash-Out Refinance for a Retiree’s Paid-Off Rental covers it. Conventional loans run on personal income and agency rules, and DSCR loans do not.
Frequently Asked Questions
Can a paid-off fourplex get a true rate-and-term refinance?
Only in a narrow sense. With no lien to retire, any new loan that returns cash is a cash-out. A rate-and-term version means a small loan with little or no cash back, usually for a title or structure reason.
Does the 75% cash-out limit mean I can always pull out that much?
No. The limit is a ceiling on value, and rent coverage on the new payment can bind first. Whichever test gives the lower amount sets the loan, subject to lender guidelines.
Do I need an LLC to refinance a fourplex this way?
No. Programs generally let you hold the loan individually or in an LLC, subject to program terms. With an entity, a person typically signs a personal guaranty, and credit and reserves still matter.
Is a DSCR loan a no-documentation loan?
No. Personal income documents are skipped, but the appraisal, leases or rent roll, entity papers, credit, reserves, and insurance are still needed. The qualification runs on the property’s income.
Does clearing 1.00x mean my fourplex cash flows?
No. It means rent covers the payment. Vacancy, repairs, management, and capital costs sit outside the ratio, so stress-test the building yourself.
The Balanced Verdict
Pick rate-and-term when you want structure and not cash, and when you value keeping the building nearly debt-free. Pick cash-out when you have a specific, productive use for the equity and the rent can carry the larger payment with room to spare. If your coverage is thin, a partial cash-out may beat both. If a recent purchase or an owner-occupied unit complicates the file, sort that out first.
The paid-off wrinkle is the key to the whole choice. Because any cash returned makes the loan a cash-out, the decision is really about how much debt a debt-free fourplex should carry. Lendmire’s complete DSCR loans guide covers the wider program picture.
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. Lendmire is a mortgage broker that arranges these loans through select lenders in its wholesale network across 41 markets, including Washington, D.C. You can reach the team at 828-256-2183.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B4-1.2-01
2. CFPB – 12 CFR 1026.3 Exempt transactions
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: How a Portfolio Cash-Out Refinance Verifies a Retired Landlord · How to Run a Cash-Out Refinance Across a Whole Rental Portfolio · DSCR Buyout Refinance vs Assumption vs Selling a Divorce 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.