DSCR, cash out Refi, Or something else...
Member since 2018 · 9 posts · 6 votes
DSCR, cash out Refi, Or something else...
Most Popular Reply
Lender · Lake Havasu City, AZ · Member since 2024 · 700 posts · 285 votes
1yIt depends on your goal.
If you WANT to sell the property, don't refi just sell as the cost will not outhweigh the savings.
But if you want to keep the property, you'd want to do a cashout refinance and get into a long term loan :)
18 Replies
- Lender · Chicago · Member since 2023 · 176 posts · 70 votes1y
If its cash flowing the All in One loan could be a great option to payoff the HELOC and pay down the loan quicker. That's the short answer on the all in one. Would need to dive into the numbers to see if it makes sense.
- 1yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
@Sandra Lopez Without discussing the numbers like the current interest rate, rental income, estimated market value, property taxes, $$$ invested into the renovation, etc. you won't get much advice. Every piece is important.
Every time your refinance or sell real estate it costs you money. Think about the long term goal for the investment. Most investors use HELOC as a "bridge" to get from point A, to point B and it's rare to use it multiple times on the same property. Prices have slowed a lot so were not seeing the natural push with appreciation. It's even more important to review your numbers. Something to consider after you get an appraisal.
- Lender · Lake Havasu City, AZ · Member since 2024 · 700 posts · 285 votes1y
It depends on your goal.
If you WANT to sell the property, don't refi just sell as the cost will not outhweigh the savings.
But if you want to keep the property, you'd want to do a cashout refinance and get into a long term loan :)
- Member since 2018 · 9 posts · 6 votes1y
Thank you very much for your reply. Here is the breakdown to have a better picture of my situation:
Purchase property: 120K
Renovation cost: 40K
ARV: 229K
HELOC: 9% fixed 30 years (169k) ; Monthly payment $1400
Rented: $2200/month
After Expenses: Insurance, Taxes, Heloc..Cash flow $500/month
What direction should I take? pay off Heloc? Cash out Refi? DSCR Loan?
Thank you in advance for your help.
- 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Sandra Lopez:
Thank you very much for your reply. Here is the breakdown to have a better picture of my situation:
Purchase property: 120K
Renovation cost: 40K
ARV: 229K
HELOC: 9% fixed 30 years (169k) ; Monthly payment $1400
Rented: $2200/month
After Expenses: Insurance, Taxes, Heloc..Cash flow $500/month
What direction should I take? pay off Heloc? Cash out Refi? DSCR Loan?
Thank you in advance for your help.
Hi Sandra,
Have you looked into trying to qualify for a conventional loan cash out refi? The rate and terms will generally be better than a DSCR loan.
If that is not an option, you could get a DSCR loan under 8% rate with a no prepayment penalty or 1 year prepay assuming a credit score of 700 or better.
The reason why the low or no prepay option is important is to give you a bit more flexibility when it comes to any future rate decreases. Although it is NOT certain rates will decrease, having the shorter PPP will help lessen the blow, if they do.
If you are OK with a longer PPP, you should be able to comfortably obtain a low 7, mid 7 rate on a DSCR cash out refi. This would make sense if your goal is not to refi again until after the 3 or 5 year period on the PPP.
LuxePrivate Investments LLC 570 Reviews
Hey Sandra,
Thanks for laying everything out—super helpful. You’ve done a great job positioning the property: strong equity, solid cash flow, and a great rent-to-cost ratio.
Here’s a quick breakdown of your options and how we typically look at it at Easy Street:
Option 1: Cash-Out Refinance
- If you go this route with a traditional lender, you might get a lower rate than your 9% HELOC.
- But conventional lenders often cap cash-outs at 75% LTV and may give pushback depending on how long you've held the property or if it's in an LLC.
- Also, full income verification and stricter underwriting apply.
Option 2: DSCR Loan
- This could be a great fit if the property is a long-term rental.
- A DSCR (Debt Service Coverage Ratio) loan is based on the property's rental income—not your personal income or tax returns.
- We offer 30-year fixed DSCR loans, and I’ve closed some recently at rates as low as 7%, depending on credit and leverage.
- You'd need at least a 1.0–1.25 DSCR (you're at about 1.57, which is strong), so you'd qualify easily.
- Option 3: Pay Down the HELOC
- Only makes sense if you're sitting on cash and want to reduce monthly payments or prepare to refinance later.
- But with $500/month cash flow, the property’s working well for you already.
- If you pay it off, you lock up capital that could otherwise go toward growing your portfolio.
🔎 My Take:
If you're not planning to sell or move personal assets into the property, I’d recommend refinancing into a DSCR loan:
- Lock in a fixed 30-year term
- Potentially lower your interest rate from 9%
- Free up your HELOC for the next deal!
Let me know if you want to explore numbers or check how much cash-out you can pull—I’d be happy to run the scenario with you.
- Member since 2018 · 9 posts · 6 votes1y
Quote from @Ravi Punn:
Hey Sandra,
Thanks for laying everything out—super helpful. You’ve done a great job positioning the property: strong equity, solid cash flow, and a great rent-to-cost ratio.
Here’s a quick breakdown of your options and how we typically look at it at Easy Street:
Option 1: Cash-Out Refinance
- If you go this route with a traditional lender, you might get a lower rate than your 9% HELOC.
- But conventional lenders often cap cash-outs at 75% LTV and may give pushback depending on how long you've held the property or if it's in an LLC.
- Also, full income verification and stricter underwriting apply.
Option 2: DSCR Loan
- This could be a great fit if the property is a long-term rental.
- A DSCR (Debt Service Coverage Ratio) loan is based on the property's rental income—not your personal income or tax returns.
- We offer 30-year fixed DSCR loans, and I’ve closed some recently at rates as low as 7%, depending on credit and leverage.
- You'd need at least a 1.0–1.25 DSCR (you're at about 1.57, which is strong), so you'd qualify easily.
- Option 3: Pay Down the HELOC
- Only makes sense if you're sitting on cash and want to reduce monthly payments or prepare to refinance later.
- But with $500/month cash flow, the property’s working well for you already.
- If you pay it off, you lock up capital that could otherwise go toward growing your portfolio.
🔎 My Take:
If you're not planning to sell or move personal assets into the property, I’d recommend refinancing into a DSCR loan:
- Lock in a fixed 30-year term
- Potentially lower your interest rate from 9%
- Free up your HELOC for the next deal!
Let me know if you want to explore numbers or check how much cash-out you can pull—I’d be happy to run the scenario with you.
Thank you for your help. I would be interested in running some number and see what is my best option. I am looking to free some money and get move on to next property. How can I reach out to you directly.
- Lender · Member since 2025 · 15 posts · 6 votes1y
Sandra, the way I'm interpreting this is effectively a Rate and Term refinance. Assuming you have solid credit, you should be able to consolidate/pay-off the HELOC with a 30-yr DSCR loan at a lower rate (sub 8%). If you want to keep the property and maximize your cashflow long-term, this is probably a good option.
- Lender · Member since 2021 · 500 posts · 131 votes1yBrandon summed it up well in my humble opinion. If you do refinance, seasoning (length of ownership) and your income (debt to income) would be factors to contemplate a conventional or DSCR loan.
Quote from @Sandra Lopez:
I took out a HELOC on my house to buy another property. I completely remodeled it and added square feet to the property to increase the value. The property is rented. I would like to pay off the HELOC, but I'm not sure which direction to take. DSCR loan, cash out refi. The important thing here is that if I take out debt on the property, it has to remain at the same value that I'm paying on the HELOC. Or should I continue with the Heloc until I sell the property? If I sell I will have to pay a lot of money in taxes since the ARV Increased.
Can anyone here please help me? Suggestions.... Thank you.
- 1yJoyce Ann MagallanesBusiness MemberLender · NY · Member since 2025 · 558 posts · 24 votes
Hi, Sandra!
You can do a DSCR refinance and use the proceeds to pay off your current HELOC lender, as long as you're not receiving more than $2,000 at closing—this would still be considered a rate-and-term refinance, not a cash-out.
However, if you're looking to pull additional cash and keep the same monthly payment, you'd need to request a lender quote upfront. Final terms would be confirmed after the appraisal and credit review.
Rather than selling, you can potentially refinance up to 75–80% of the current value. To qualify at that LTV, the new mortgage payment must be supported by the property's market rents.
Venture Estate Group LLC525 Reviews - Lender · Nationwide · Member since 2018 · 69 posts · 32 votes1y
Hi Sandra, you're in a solid position. Way to go adding value and generating cash flow. Instead of focusing solely on product type, DSCR vs. cash out refi, think in terms of capital efficiency and return on equity, aka ROE.
You're earning $6K/year on $60K equity, so ROE ≈ 10%. Not bad but as equity grows and cash flow stays flat, ROE declines. That’s called equity drag, and it’s why many investors refinance to recycle equity into more deals.
Your current HELOC at 9% is expensive, especially if it's interest only. A DSCR loan with amortization and a fixed rate can improve your long term position, lower risk, and free up your HELOC for the next investment.
Also if selling would trigger heavy taxes, consider a 1031 exchange or talk to your CPA about cost segregation or depreciation strategies to defer gains.
My suggestion is to focus on improving debt structure and ROE, not just product & rate shopping. Let me know if you want a side by side comparison on your options.
- 1yNick BelskyBusiness MemberLender · Orlando, FL · Member since 2021 · 1k+ posts · 704 votes
Make a spreadsheet and do a side by side comparison; selling and paying off your HELOC versus refinancing to hold long term. Run the costs of making payments to your HELOC versus estimated PITIA to your DSCR mortgage. If you can't pull enough cash out to cover the HELOC, your analysis will have to include paying both the DSCR PITIA and any remaining HELOC balance you'd be carrying.
Your HELOC can be paid off either way... via sale proceeds or cash out proceeds.
From a tax perspective, you cannot be taxed on cash out proceeds from a refinance. If you sell, you will likely have to look at capital gains taxes. You can check with a CPA to find out what that impact may be, if you can offset with any improvements you've made, and get a better idea of how that impacts your overall tax liability.
Cheers!
Belsky Mortgage, LLC521 Reviews Just sent a connection request - would love to connect and talk specifics about your situation. There's some great directional advice here, but what the right decision is ultimately comes down to what your goals are and what the property value and rents will support through underwriting.
- 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
@Sandra Lopez You're in a good equity position, and choosing between payoff strategies depends heavily on both financial flexibility and tax impact. Here's how each option stacks up, with tax considerations included:
- Cash-Out Refi:
- Converts short-term debt into long-term, fixed financing.
- Tax benefit: Interest on the new mortgage is fully deductible as a rental property expense if proceeds are used for business/investment purposes (like paying off the HELOC).
- No taxes due on the cash-out amount, since it's a loan, not income.
- Best for long-term holding, but consider closing costs and possibly higher rates.
- DSCR Loan (Debt Service Coverage Ratio):
- Loan approval based on rental income, not personal income—useful if your DTI is high.
- Tax benefit: Interest remains deductible if the loan funds relate to the rental (e.g., paying off improvement-related HELOC).
- DSCR loans typically have higher interest rates and possible prepayment penalties, which you'll want to model out.
- Keep the HELOC:
- Gives flexibility with interest-only payments.
- Tax warning: Interest is only deductible if funds were used directly for rental-related expenses. If any portion was used personally or for unrelated investments, that interest may not be deductible.
- Rising variable rates may erode future cash flow.
- Sell the Property:
- Triggers capital gains tax and depreciation recapture, especially with a value increase from renovations.
- To avoid or defer this, use a 1031 exchange, rolling proceeds into another like-kind investment property. You must identify new property within 45 days and close in 180.
- Keep records of renovation costs to increase your basis and reduce taxable gain.
Suggestion: If you plan to hold, use a refi or DSCR loan to secure the property long-term and deduct interest. If you're leaning toward selling soon, consider keeping the HELOC temporarily and plan for a 1031 exchange to protect your gains from taxes. Run a tax projection with a real estate CPA to make the best strategic move.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®4.9242 Reviews - Cash-Out Refi:
- 1yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 526 votes
You can pay off the HELOC with longer term financing if you're keeping the property. You can either do a conventional cash out refinance if you want it to be a debt to income loan / DTI loan. If you want to use the new conventional value then you have to had a year past since your last transaction in the property.
If you would like a shorter waiting also called seasoning period, you can do a DSCR loan. There are DSCR loans with no seasoning and you will have more options at three or six months after the last transaction.
If you're lookng to refinance more quickly than a year or you would like to use a loan that's based on the rent and not your income then a DSCR loan is an option.
More info on DSCR loans: DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lender780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Happy to connect to discuss further.
Bright Skyline518 Reviews - Lender · Sanford, NC · Member since 2024 · 359 posts · 121 votes1y
Hey Sandra, sounds like you've added a lot of value—nice work! Since the property is rented, a DSCR loan could be a solid option to consider. You could potentially pay off the HELOC with long-term fixed financing as long as the rental income supports the debt service ratio lenders look for (typically 1.0–1.25+).
That said, if your priority is keeping the monthly payments roughly the same as the HELOC, you'll want to compare the numbers closely. DSCR loans usually come with interest-only options, and depending on the rate and term, they might give you more breathing room.
A cash-out refi could also work, especially if the property appraises well after the remodel—but it might come with a higher rate or tighter LTV limits than the HELOC, depending on the lender and your credit/income profile.
And you're right: if you sell, the tax bill could be painful with the appreciation and any depreciation recapture. If you're leaning toward holding the property, it might be worth looking at a DSCR or even a HELOC refinance (some lenders offer longer-term HELOCs or fixed-rate seconds) as a way to stabilize cash flow without triggering taxes.
Happy to chat if you'd like to compare a few real-world numbers side by side!
- New to Real Estate · Member since 2025 · 76 posts · 7 votes1y
Quote from @Sandra Lopez:
I took out a HELOC on my house to buy another property. I completely remodeled it and added square feet to the property to increase the value. The property is rented. I would like to pay off the HELOC, but I'm not sure which direction to take. DSCR loan, cash out refi. The important thing here is that if I take out debt on the property, it has to remain at the same value that I'm paying on the HELOC. Or should I continue with the Heloc until I sell the property? If I sell I will have to pay a lot of money in taxes since the ARV Increased.
Can anyone here please help me? Suggestions.... Thank you.
if you're interested in exploring that refinance path or want a second opinion on structure, feel free to DM me.
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