The Quick Read: The exit works in four steps: get a payoff statement, document rent and value, clear the new lender’s leverage and coverage tests, and close through title so the old deed of trust gets released. For a keep-and-rent property, the usual take-out is a DSCR loan that qualifies primarily on property-level rental income, subject to lender guidelines.
- A DSCR cash-out refinance tops out at 75% LTV, and rate-and-term goes up to 85% LTV on an investment property, with no cash back at closing.
- Cash-out typically wants about 6 months of ownership, measured from title recording.
- Select DSCR programs start at 1.00 coverage. Sub-1.00 coverage is available through select lenders in the network, with leverage and terms adjusted.
- Tennessee adds a fresh indebtedness tax on the new deed of trust and a release step on the old one.
Why the Exit Is Planned Before the Rehab
Hard money is short-term, interest-only, and asset-based. Terms on the current hard money program run 6-18 months, so the loan is built to be repaid by a sale or a refinance, and every extra month adds carry. The refinance is the planned handoff from rehab debt to rental debt.
DSCR Cash-Out Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
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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.
Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized. Lendmire brokers that path through its wholesale network, which covers 41 markets, including Washington, D.C. The hard money exit refinance program page covers how the handoff is structured. The pieces below are the mechanics. The complete DSCR loans guide covers the loan product itself.
How the New Lender Actually Underwrites the Exit
The new lender sizes the loan on its own appraisal, not on your after-repair value estimate. What you paid and what you spent on rehab do not set the number. Four gates each have to clear on their own:
- Seasoning. Time owned. This is a lender overlay, not a federal rule.
- Value against payoff. The appraisal and the LTV cap decide how much comes back.
- Rent coverage. Monthly rent divided by the full payment on the new loan: principal, interest, taxes, insurance, and any HOA dues.
- Program caps. Leverage ceilings, reserves, credit, and property eligibility.
The smaller of the value-based limit and the rent-based limit caps the loan. The break-even appraisal is the payoff plus exit costs, divided by the LTV cap. Below that value, the borrower brings cash to closing.
Clearing 1.00 coverage is not the same as positive cash flow. DSCR compares rent to the housing payment only. Repairs, vacancy, management, utilities, and capex sit outside the calculation.
The Step-by-Step Exit
1. Classify the refinance. A payoff-only (rate-and-term) refinance covers the old balance and closing costs and returns no cash. On an investment property, DSCR rate-and-term goes up to 85% LTV. A refinance that returns cash is a cash-out, capped at 75% LTV. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
2. Order the payoff statement early. It should show principal, accrued interest, the per diem, any extension or exit fee, and any prepayment or minimum-interest clause. The current hard money program carries no prepayment penalty, but other notes differ, so read yours. Payoff letters carry a good-through date, so a slipped closing changes the figure. Request an updated one near closing.
3. Assemble the documents. You need the original settlement statement, which shows the purchase price and title date. Add the hard money note and deed of trust, the lease and rent history, entity documents, insurance, and the appraisal with a market-rent schedule. The rent forms are the 1007 for single-family and the 1025 for 2-4 units.
4. Underwrite value and rent. The appraisal sets value. The coverage test runs on the new, larger payment.
5. Close through title. The title company obtains the payoff statement, and the new lender wires the payoff directly to the old lender. The borrower never handles the payoff funds. Any surplus goes to the borrower or the titled entity.
6. Confirm the release posted. Payment discharges the debt, but the recorded release is a separate step. More on that below.
What Tennessee Adds to the File
Tennessee uses a deed of trust, not a plain mortgage. The owner conveys title to a trustee for the lender’s benefit, and the instrument is recorded with the county Register of Deeds. A refinance records a fresh one, and that triggers three line items to budget.
Indebtedness tax on the new loan. Tennessee sets the indebtedness tax at $0.115 per $100 of indebtedness, with the first $2,000 of debt exempt. Under Tenn. Code § 67-4-409, the tax falls on the debtor. Ask the title company to quote it before closing. Cost-based line items matter here: interest and collection costs are generally outside the tax base, but Holland & Knight notes they can become taxable if added to principal and carried forward in a refinance or amendment.
No transfer tax on the refinance. The 37 cents per $100 realty transfer tax applies to the purchase deed. The Department of Revenue overview describes it as a separate tax from the indebtedness tax.
Release of the old lien. Under Tenn. Code § 66-25-101, the holder must record a formal deed of release after payment. If it fails to record within the statutory period after a written request, it forfeits $100. If the lien is still unreleased after a second request, the forfeit can reach $1,000, per § 66-25-102. The request can come from the payer, the purchaser, or the closing agent who sent the funds.
An unreleased lien can cloud title or block a later sale or refinance. Check the Register of Deeds after payoff. Don’t assume.
What the DSCR Exit Looks Like in Numbers
These are typical guideline ranges from select lenders in the wholesale network, subject to lender guidelines. They are not a commitment to lend.
| Factor | DSCR exit loan | Hard money loan |
|---|---|---|
| Cash-out leverage | Up to 75% LTV | Up to 65% of value |
| Rate-and-term leverage | Up to 85% LTV, no cash back | Up to 65% of value |
| Coverage | Select programs start at 1.00 | Asset-based, no coverage test |
| Seasoning | About 6 months for cash-out | None |
| Credit | 620 floor, tiers at 660, 680, 700 | 620 minimum, conditions below 660 |
| Reserves | About 6 months PITIA, about 9 above $1,500,000 | Varies by lender, property, and experience |
| Loan size | Up to $3,000,000 standard | Varies by lender, property, and experience |
The hard money column shows the refinance leverage on that product. Its loan-to-cost tiers for purchases and rehab are a different structure and do not carry over. A DSCR loan at 1.00 coverage is a program floor for select programs, not a universal standard. Stronger ratios open better leverage. Coverage below 1.00 runs through a separate select-lender path where leverage and terms adjust.
Property type matters. Manufactured homes, log homes, and barndominiums fall outside these DSCR programs. A rehab on one of those cannot take this exit.
Where the General Rule Breaks
Delayed financing rarely fits. That conventional-loan exception waives seasoning for cash buyers and caps the new loan at what you paid. A hard money purchase is not a cash purchase, because the funds were secured by the subject property. You simply refinance. That is why the seasoning clock on a DSCR loan is the real constraint.
Payoff-only versus cash-out. A payoff-only exit is usually treated more gently. Within the seasoning window, a lender may size on cost basis rather than appraised value. A cash-out above basis brings back the full clock.
Two-step exit. A first payoff-only DSCR loan, then a later cash-out. Each loan clears its own tests. It costs two closings and, in Tennessee, two rounds of indebtedness tax.
Extensions and modifications. A recorded modification that raises the maximum principal indebtedness triggers tax on the increase. Ask the title company before signing an extension.
Payoff that includes other debts. Paying rehab credit cards or other non-mortgage debts from proceeds generally turns the file into a cash-out.
Entity mismatch. The entity on the hard money deed of trust should match the entity on the new loan, subject to lender program eligibility.
The Decision in Practice
Picture an investor holding a stabilized rental with a hard money loan maturing soon. If rent clears the coverage test and the appraisal clears the break-even, a DSCR rate-and-term refinance is the clean exit. If the appraisal lands short, the options are bringing cash, extending the hard money loan, or waiting for seasoning and a better comp set. If the borrower wants cash back, the 75% cap and the 6-month clock set the ceiling.
Payoff creep is the quiet risk. Interest, extension fees, and exit fees raise the payoff while the LTV cap stays fixed. The break-even appraisal climbs with them. Dollars left in the deal are set by the new LTV cap, not by your cost.
Plan the take-out before the rehab starts. Lendmire’s piece Can I Refinance A Hard Money Loan? covers the eligibility side. 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.
Key Terms Defined
Seasoning: the time you have owned the property, measured from title recording.
Deed of trust: the Tennessee security instrument that conveys title to a trustee for the lender’s benefit.
Break-even appraisal: the payoff plus exit costs, divided by the LTV cap.
Per diem: the daily interest that accrues on the payoff balance.
Deed of release: the recorded document that clears the old lien.
Frequently Asked Questions
Can I refinance out of hard money before the seasoning period ends?
Sometimes, usually as a payoff-only refinance sized on cost basis rather than appraised value. A cash-out typically wants about 6 months of ownership. No federal rule sets this, so it varies by lender.
Who pays to release the old hard money lien in Tennessee?
The statute puts release recording costs on the debt holder. A Tennessee practitioner summary of a Court of Appeals decision says the lender cannot pass this cost to the borrower, with a possible preemption exception for national banks.
Does Tennessee tax the new loan?
Yes. A refinance records a new deed of trust, and the indebtedness tax applies to the new loan amount, with the first $2,000 exempt. Ask title for the quote.
Can the DSCR lender size the loan on my after-repair value?
No. It sizes on its own appraisal and the lower of the value limit and the rent limit. After-repair estimates do not control the number.
What if my coverage lands below 1.00?
Select lenders in the network offer sub-1.00 programs, with leverage and terms adjusted. Qualification stays subject to credit approval and property review.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
2. Holland & Knight, Tennessee Indebtedness Tax Part 1
3. Tennessee Dept. of Revenue, REC-1 Recordation Tax Overview
6. Tennessee practitioner summary
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Refinance Out of a Hard Money Loan in Florida · How to Refinance Out of a Hard Money Loan in Wyoming · How to Refinance Out of a Hard Money Loan in Indiana
Guides: Hard Money Loans in Tennessee
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.