DSCR cash-out refinance
A DSCR cash-out refinance pays out the difference when a larger loan replaces the rental loan, provided the rent covers the new payment.
Two limits on a DSCR cash-out refinance
Loan-to-value, or LTV, sets the first limit: it shows the new loan as a portion of the appraised value. Lima One Capital lists up to 75% for cash-out loans, compared with 80% for purchases. The ratio forms the second limit, and the higher payment must meet the lender's minimum DSCR. Of the two amounts, the lender offers the smaller one.
Cash in hand equals the new loan, minus the old balance and closing costs. A fair planning figure is 2% to 3% of the new loan amount; the lender's estimate replaces that figure.
A worked DSCR refinance example
The rental is worth $320,000 and it owes $150,000. Monthly rent is $2,400, with $300 for tax and $160 for insurance. At 7.5%, the new loan term is 30 years, and closing costs are 2%.
| Lender minimum | LTV cap (75%) | Ratio cap | New loan | Cash out | New DSCR |
|---|---|---|---|---|---|
| 1.00 | $240,000 | $277,454 | $240,000 | $85,200 | 1.12 |
| 1.25 | $240,000 | $208,806 | $208,806 | $54,630 | 1.25 |
When the minimum is 1.00, the LTV limit becomes binding, and the owner takes out $85,200. At 1.25, the rent limit controls first, limiting the loan to $208,806 and the cash to $54,630. At 1.25, increasing rent by $100 a month would raise the ratio cap by about $11,400.
Cash-out rates and seasoning
With the same LTV, cash-out loans usually cost more than purchases or rate-and-term refinances. Many lenders ask the owner to have held the property for a time, often 3 to 12 months, before they rely on the new appraised value instead of what was paid. Read the lender's own page to learn its rule.
Use our DSCR loan calculator to check the payment based on the quoted rate. Next, compare cash-out terms across lenders on our DSCR lenders page.