The Quick Read: A lender sizes a fourplex cash-out by running two tests and funding the smaller result. The value test is appraised value times the cash-out leverage cap, which sits at about 75% LTV on a standard rental cash-out across most of the network. The rent test is the largest payment the building’s rent can carry at the required coverage ratio. Net cash is the new loan minus the payoff, junior liens, closing costs, and any funded reserves. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
- Equity sets the ceiling. Rent can set the actual loan when it supports less than the value test does.
- A four-unit building is underwritten as residential-style collateral. Five or more units move to commercial underwriting.
- Cash-out generally needs about 6 months of ownership, measured from title recording. Inside that window, many lenders size the loan on a lower basis rather than on today’s value.
- Clearing 1.00 coverage is not the same as positive cash flow.
The first question a lender asks is not how much equity the borrower has. It asks which of several limits binds first. This article walks through that sequence the way a file actually moves.
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What Does “Sizing” Mean on a Fourplex Cash-Out?
Sizing means finding the largest loan the file supports and then working down to the cash that reaches the borrower. It is not one calculation. The lender takes the value-based amount, takes the rent-based amount, and uses the lower one. Then it subtracts everything that has to be paid off or set aside.
The formula, in plain terms:
- Maximum loan by value = appraised value × the cash-out cap (about 75% LTV on a standard rental cash-out).
- Maximum payment by rent = rent used for lender review ÷ the coverage floor (1.00 is where select programs start).
- Net cash = new loan − payoff − junior liens − costs − funded reserves or holdbacks. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Any cash back at closing makes the loan a cash-out. A refinance that only pays off the old loan and costs is a rate-and-term refinance, which sits in its own category. Classify the transaction first. Everything else follows from it.
Key Terms Defined
Cash-out refinance: A new loan that pays off the old one and returns the leftover money to the borrower at closing.
LTV (loan-to-value): The new loan amount divided by the appraised value of the property.
Seasoning: The ownership period a lender expects before it sizes the loan on appraised value, counted from title recording.
DSCR (debt service coverage ratio): Qualifying monthly rent divided by the full monthly housing payment, meaning principal, interest, taxes, insurance, and any association dues.
PITIA: That full monthly payment: principal, interest, taxes, insurance, and association dues.
Net cash: What reaches the borrower after the payoff, liens, costs, and reserves come off the new loan.
Legal unit count: The number of units the property is legally permitted to have, not the number marketed in the listing.
Step 1: Classify the File Before Any Math
A fourplex is residential-style collateral for lending purposes. A building with four units or fewer stays in the 1–4 unit lane. Five or more units go to commercial underwriting with different math, so a “four-plus” building with a fifth legal unit is a different file. For the full program picture, the complete DSCR loans guide covers how the product works end to end.
Four questions sort the file:
| Question | One answer | Other answer |
|---|---|---|
| Legal units? | 2–4: DSCR lane | 5+: commercial |
| Who lives there? | Non-owner-occupied: DSCR | Owner in a unit: leaves DSCR |
| Cash back? | Yes: cash-out | No: rate-and-term |
| Rental type? | Long-term: standard caps | Short-term: lower caps |
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. If the borrower lives in one of the four units, the file is no longer a DSCR file, and a different program applies.
Legal unit count deserves a check on every file. A building marketed as four units but legally permitted as three is sized as three. Mixed-use buildings need the same check. Pull the certificate of occupancy or zoning confirmation before the appraisal, not after.
Step 2: The Value Test
The value test is the simple one. The lender orders an appraisal, takes appraised value, and multiplies by the cap. On a standard rental cash-out the cap is about 75% LTV across most of the network. A short-term-rental fourplex runs lower, at 70% on cash-out. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
On a 2–4 unit building, the appraiser uses the Small Residential Income Property Appraisal Report, the standard form built for two- to four-unit properties. DSCR loans are not agency products, and the lender’s own guidelines govern the loan. The form is just the standard container for the appraisal.
A low appraisal shrinks the loan directly, and it shrinks the cash back faster than it shrinks the loan, because the payoff does not move. Picture a modeled case where the appraisal comes in 5% light: the loan ceiling drops by 5%, but the same payoff and costs still come off the top, so the cash portion drops by a much larger share. That asymmetry is why appraisal reconsideration, with recent in-neighborhood sales and condition adjustments, is a routine step on cash-out files.
Seasoning changes which value counts. Inside the seasoning window, many lenders size on the lower of appraised value or documented cost basis. After it, they use appraised value. Seasoning is lender policy, not law, and the network’s common expectation is about 6 months from title recording. Waiting out the clock makes you eligible to ask. It does not set the loan amount.
Step 3: The Rent Test
The rent test is where fourplex files separate from single-family files. The lender divides rent used for lender review by the proposed PITIA. The new loan is bigger than the old one, so the payment is bigger, so coverage falls. Equity may allow the cap while rent allows much less. When that happens, rent binds and the borrower gets a smaller loan than the 75% ceiling suggests.
Fourplex rent is the sum of four units. One vacant unit hurts, but it does not zero the income.
The appraisal’s rent schedule matters here. On the form, the appraiser reconciles market rent for each unit rather than producing one blended number, and those unit-level rents roll into an operating income statement. An appraisal-industry reference lists the roles of the rent schedule and the operating income form that often travels with it.
Which rent counts is a lender-by-lender call. The usual choices:
- Signed lease rent for occupied units.
- The appraiser’s market rent for each unit.
- The lower of the two, which some programs use.
- Market rent on a vacant unit, which some programs allow and others discount.
No universal rule applies. Across the network, the common pattern is that documented leases support occupied units, and the appraisal rent schedule backstops vacant or below-market units. Rent-controlled or legacy-tenant units that sit well under market are the usual place where lease rent and market rent diverge, and the lender’s choice moves the number.
Coverage thresholds follow the program. 1.00 is where select programs start, and stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. No-ratio structures are available only through select lenders, generally for borrowers who already own a primary residence.
Step 4: Take the Lowest Answer
The lender does not pick between the value test and the rent test. It takes whichever gives the smaller loan, then applies any program loan limit and the seasoning basis. Four common outcomes:
| Scenario | Binding limit | What it means |
|---|---|---|
| Strong rent, modest equity | Value (75% cap) | Equity is the constraint |
| Thin rent, large equity | Rent (coverage) | Payment is the constraint |
| Bought inside seasoning | Cost basis | Lower of cost or value |
| Short-term rental | Lower cap (70%) | Different ceiling applies |
The 75% figure is a ceiling, not an entitlement. A building with a lot of equity and light rents can still land well below it, because the rent test sets the loan.
Step 5: From Loan to Cash
Equity is not cash. The waterfall runs in this order:
1. Start with the new loan amount, the lower of the two tests.
2. Subtract the payoff of the existing first mortgage.
3. Subtract any junior liens, which must be paid off or handled at closing.
4. Subtract closing costs, prepaids, and escrows.
5. Subtract funded reserves or holdbacks, if the file requires them.
6. The remainder is net cash.
Reserves deserve their own line. Across the network they commonly run about 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. Conservative rate-and-term files at modest leverage under that size can see reserves waived. Reserves vary by lender, leverage, loan size, and transaction type, so treat the 6-month figure as a typical range, not a universal one. Cash pulled from the refinance usually does not count toward reserves, so the borrower needs reserves documented separately.
A prepayment charge on the old loan also eats into the benefit. Read the payoff letter for it before pricing the refinance in your head.
A Worked Fourplex Example (Percentages and Ratios Only)
Run the numbers on a modeled case. A fourplex appraises well, the borrower owns it free of any recent-purchase issue, and the existing mortgage is modest. Four units carry uneven rents: two near market, one well under market from a long-tenured tenant, one vacant and held at the appraiser’s market rent.
- Value test: 75% of appraised value sets the ceiling.
- Rent test: the lender takes lease rent for the three occupied units and market rent for the vacant one, then divides by the PITIA on the loan at the ceiling.
- Result: coverage on the full 75% loan lands near 0.95x. That is under the 1.00 floor where many select programs start.
Rent binds. The lender solves backward: what loan produces a payment that rent covers at 1.00? That loan sits meaningfully below 75% LTV. The borrower can take a smaller loan and clear the 1.00 test, or pursue the separate select-lender path that accepts coverage below 1.00 with leverage and terms adjusted. Qualification is subject to lender guidelines, credit approval, and property review.
Now run a sensitivity. Lower the appraisal by a modest amount and lower the vacant unit’s rent. The value ceiling drops, the rent-supported loan drops, and the cash portion drops by far more than either input, because payoff and costs stay fixed. That is the feedback loop in one example. Raising the under-market unit toward market rent before the appraisal can lift both tests at once, since higher rent supports a bigger payment and may support the appraised value, depending on comps and underwriter review.
Fourplex files stall on paperwork the borrower could have staged earlier. Leases that don’t match the rent roll, a payoff statement that predates a junior lien, or an entity document that doesn’t list the signing member all cause a pend. Staging leases, the payoff letter, the insurance quote, and entity documents before the appraisal goes in keeps the file clean.
Where the General Rule Breaks
The 75%-and-rent framework holds for the typical file. These cases bend it.
Owner-occupied fourplex. If the borrower lives in a unit, the file leaves the DSCR lane entirely. The appraisal form is the same for 2–4 units whether or not the owner occupies one, so the form does not decide the program. Occupancy does.
Recent purchase, financed. Wait out seasoning. Inside it, sizing runs on the lower of cost basis or value.
All-cash buyer. Delayed financing is the exception. The loan is sized near documented cost, capped by the normal LTV, and does not use today’s value.
BRRRR payoff. The lender’s own new appraisal governs, not the after-repair estimate. A payoff-only refinance often avoids the cash-out seasoning clock, because no cash comes back.
Condo or PUD fourplex. Often workable. The appraisal form requires the condo form as an addendum when a 2–4 unit property sits in a condo project, and association dues go into PITIA, which pulls coverage down. HOA questionnaire completeness and condo certification become part of the file.
Short-term-rental collateral. Cash-out tops out at 70% LTV, expect a 640+ score and about 12 months of hosting history, and the coverage ratio is tested at the same 1.00 starting point that select programs use. 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. Every figure here varies by lender and program.
Thin equity. At a 75% cap, a building with only a sliver of equity may return little or no cash once the payoff, junior liens, costs, and reserves come off. Run the waterfall before ordering an appraisal. If the net comes out near zero, the refinance may not be worth the cost.
LLC title. Loans to entity borrowers are available subject to lender program eligibility. Operating agreement, articles, EIN letter, and a good-standing certificate should be current and match the signer.
Five or more units. Commercial underwriting, different math, different documents.
Ineligible property types are simple. Manufactured homes, log homes, and barndominiums are not offered in the network’s DSCR programs.
Credit, Loan Size, and Structure
Credit shapes leverage more than eligibility. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers. Loan sizes run up to $3,000,000 on standard programs (balances below the standard-program minimum route through select lenders), and above $2,500,000 the network generally holds to 30-year fixed structures. The 30-year fixed is the spine. Extended terms such as a 40-year and interest-only periods are available through select lenders, and ARM structures exist for investors who want them. Interest-only can lift coverage because it lowers the payment line, which matters on a fourplex where rent binds.
A larger down payment or lower leverage lowers the payment and can lift coverage. It never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Cash Flow Is Not Coverage
This is the misread that costs investors money. DSCR compares rent to PITIA only. It does not count vacancy, repairs, management, utilities, or capital expenses. A fourplex can clear 1.00 and still leave a thin monthly margin once those costs land. The refinance also restarts the amortization clock and raises the payment, so a larger pull means a heavier carry on a building whose real operating costs sit outside the ratio.
Before choosing the pull amount, run an operating budget next to the coverage number. If the building only works at the maximum loan, take less.
Common Misreads
- “Equity equals cash.” The cap, payoff, costs, and reserves all come off first.
- “75% LTV is mine by right.” It is a ceiling, and rent often binds first.
- “A fourplex needs commercial financing.” Not at four units or fewer.
- “After-repair value counts.” The lender’s own appraisal governs.
- “Agency seasoning rules apply.” DSCR lenders set their own, and they vary.
- “DSCR means no documents.” There is no personal income documentation, since the loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. The property file is still fully reviewed.
What to Gather Before Asking a Lender to Size It
1. A certificate of occupancy or zoning confirmation showing the legal unit count.
2. Current leases for every occupied unit, plus a rent roll that matches them.
3. The payoff statement for the existing loan, including any junior liens.
4. Current tax and insurance figures for the property.
5. Entity documents, if the building sits in an LLC.
6. Reserves documentation, separate from the refinance proceeds.
7. HOA or condo documents, if applicable.
A broker that shops multiple wholesale lenders can match this package to the program where rent treatment, seasoning, and reserve rules fit best. Those rules differ across lenders, and the right fit depends on the property, the credit profile, and the leverage you need. For how equity extraction works on an investment property more broadly, see Lendmire’s guide to cash-out refinance on an investment property.
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. Reach the team at 828-256-2183 or request a quote. The site’s illustrative calculator gives an editable estimate, not a quote. Program details are subject to lender guidelines and are not a commitment to lend.
Frequently Asked Questions
How much cash can I pull from a fourplex?
It depends on the lower of two limits. The value limit is about 75% of appraised value on a standard rental cash-out, and the rent limit is the loan whose payment the rent used for lender review covers at the program’s coverage floor. From the lower number, the payoff, junior liens, costs, and reserves come off. Subject to lender guidelines.
Can I do a cash-out if I live in one of the units?
Not through DSCR. These loans are for non-owner-occupied investment property, so an owner-occupied fourplex moves to a different program. The appraisal form is the same either way, but occupancy decides the loan type.
How long must I own the fourplex first?
About 6 months from title recording is the common expectation across the network. Inside that window, many lenders size on the lower of cost basis or appraised value. Seasoning is lender policy, so it varies.
How is rent counted on a four-unit building?
Each unit is looked at separately. Lenders generally use signed lease rent for occupied units and the appraiser’s market rent where a unit is vacant or well under market, and some programs use the lower of the two. The treatment varies by lender.
What reserves will I need?
Commonly about 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. Reserves vary by lender, leverage, loan size, and transaction type.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income rather than personal income, subject to lender and program guidelines, a fit for self-employed investors and LLC-owned portfolios. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. blog.newjerseyrealestateappraisal.com: Form Appraisal
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: Short-Term Rental Cash-Out Refinance Lenders When Borrowing Through an LLC · Short-Term Rental Cash-Out Refinance vs Long-Term Rental Loan When the Appraisal Is Low · Top Short-Term Rental Cash-Out Refinance Providers to Go Fixed
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.