Investment Property Cash-Out Refinance: DSCR and Conventional Options

Two ways to pull cash out of a rental

Conventional limits are from Fannie Mae's eligibility matrix. DSCR terms are set by each lender, so they vary. Your actual options depend on the property, your credit and current guidelines.

How much cash can you get from an investment property?

The math is the same as any cash-out refinance: the maximum new loan is the appraised value times the maximum LTV, minus what you owe, minus closing costs.

Hypothetical examples for illustration only. Closing costs, reserves and lender limits reduce the final amount.

Our cash-out refinance calculator lets you try your own numbers.

Option 1: Conventional investment property cash-out refinance

A conventional cash-out refinance on a rental works much like one on your home, with tighter limits:

• LTV: generally up to 75% for a one-unit investment property and 70% for 2 to 4 units.
• Income: documented with tax returns. Rental income is usually taken from Schedule E of your returns, or from a lease and market rent schedule in some cases.
• Debt-to-income: all your debts, including the payments on every financed property, count against your income.
• Seasoning: under Fannie Mae rules, at least one borrower must be on title for six months, and an existing first mortgage being paid off must be at least 12 months old. Investors who bought with cash may use "delayed financing" to recover their cash sooner.
• Reserves: required, and they increase with the number of financed properties you own.
• Pricing: investment property and cash-out adjustments both apply, so rates are higher than on a primary residence.

Best for: investors with strong, easy-to-document income and a small number of properties who want the lowest rate. Full rules are in Fannie Mae's cash-out refinance guidelines.

Option 2: DSCR cash-out refinance

A DSCR cash-out refinance qualifies on whether the property's rent covers its full payment (principal, interest, taxes, insurance and HOA dues). Your personal income isn't used.

• DSCR: many lenders want 1.0 or higher on the new, larger payment. Because a cash-out raises the loan amount, check that the rent still covers it.
• LTV: often around 70% to 75% for cash-out, depending on credit and the ratio.
• Documents: lease, appraisal with a market rent schedule, asset statements for reserves, and LLC documents if the property is owned by an entity.
• Seasoning: commonly a few months to a year of ownership before a lender will use the full appraised value. With shorter ownership, some lenders cap the value at purchase price plus documented improvements.
• Prepayment penalty: common, often a three- to five-year step-down. A longer penalty can lower the rate.

Best for: self-employed investors, investors whose tax returns show low income after depreciation and write-offs, properties held in LLCs, and growing portfolios. Details on qualifying are in our DSCR loan requirements guide.

Common reasons investors take cash out

• Fund the next down payment and buy another rental without selling.
• BRRRR strategy: buy, rehab, rent, then refinance to pull out the capital you put in, and repeat.
• Renovations that raise rent or property value.
• Pay off a short-term or hard money loan with long-term financing.
• Consolidate higher-cost debt tied to your investing business.

Cash-out refinance vs HELOC on a rental property

HELOCs on investment properties exist but are harder to find than HELOCs on a primary home, and they're often limited to lower combined loan-to-value ratios. A HELOC can make sense if you want flexible access to funds and your current first mortgage has a low rate you'd rather keep. A cash-out refinance makes more sense when you want a fixed payment, need a larger amount, or your current rate isn't much lower than today's. Our cash-out refinance vs HELOC comparison shows how to run the numbers.

Tax considerations

Cash-out proceeds aren't income, but how you use them can affect your taxes. Interest on money used for the rental property may be deductible as a rental expense, while interest on money used for personal purposes generally isn't. Closing costs and points on a rental refinance are typically amortized over the loan term rather than deducted all at once. The IRS covers rental property expenses in Publication 527. Talk to your tax professional before you decide.

Risks to weigh

• Higher payment: a larger loan means a higher monthly payment, which lowers cash flow.
• Thinner equity cushion: if values fall, you have less room to sell or refinance.
• Vacancy risk: make sure you can cover the payment during vacancies and repairs.
• Prepayment penalties on DSCR loans can make an early sale or refinance expensive.
• Losing a low rate: if your current rental mortgage has a low fixed rate, replacing it can cost more over time.

Step-by-step: how to do an investment property cash-out refinance

1. Estimate your equity and how much cash the LTV limit allows.
2. Check the DSCR on the new, larger payment if you're considering a DSCR loan.
3. Gather documents: lease, mortgage statement, insurance, asset statements, and tax returns (conventional) or LLC documents (DSCR).
4. Compare conventional and DSCR offers, including rate, costs, prepayment terms and cash to you.
5. Order the appraisal, including a market rent schedule.
6. Close and fund; cash-out proceeds are typically disbursed after closing.

Example: a BRRRR cash-out refinance

Here's how the numbers might look for an investor using the buy, rehab, rent, refinance, repeat strategy:

Hypothetical example for illustration only. Whether the lender uses the new appraised value depends on its seasoning rules; with short ownership, some lenders limit the value to cost plus documented improvements.

The refinance only works long term if the rent still covers the new, larger payment. Check the DSCR or your debt-to-income ratio on the new loan before you count on the cash.

Documents you'll need

• Current mortgage statement for the rental
• Signed lease, or rental history for short-term rentals
• Homeowners (landlord) insurance declarations page
• Property tax bill and HOA information
• Two to three months of asset statements for reserves
• Two years of tax returns (conventional) or LLC documents (DSCR, if applicable)
• Schedule of your other properties and their loans
• Receipts or a scope of work for recent improvements

Questions to ask lenders

• What's your maximum cash-out LTV for my credit score and property type?
• How long must I own the property before you'll use the appraised value?
• Is there a prepayment penalty, and what are the options?
• How much of the cash-out can count toward reserves?
• Do you allow the loan to close in my LLC?

Conventional or DSCR: which fits you?

A few quick questions usually point to the right route:

• Do your tax returns show enough income to qualify after depreciation and write-offs? If yes, conventional is usually cheaper. If not, look at DSCR.
• How many financed properties do you own? Conventional limits and reserve requirements tighten as your portfolio grows; DSCR loans are built for larger portfolios.
• Is the property in an LLC? DSCR lenders often allow it; conventional loans usually don't.
• How long have you owned it? Seasoning rules differ, and DSCR lenders vary widely.
• Might you sell soon? Watch DSCR prepayment penalties.

A licensed loan officer can price both routes side by side so you can see the difference in rate, cost and cash to you.

Frequently asked questions

Related guides and tools

Sources

• Fannie Mae Selling Guide: B2-1.3-03, Cash-Out Refinance Transactions
• Fannie Mae: Eligibility Matrix
• Internal Revenue Service: Publication 527, Residential Rental Property
• Consumer Financial Protection Bureau: Loan Estimate explainer