DSCR Loan Purpose Basics: Acquisitions vs. Refis | DSCR Loans Video Guide Part 8

Robin SimonPoster

#3 Private Lending & Conventional Mortgage Advice Contributor

Lender
Austin, TX

Posted July 20, 2026 07:20

https://www.youtube.com/watch?v=qe87F1Gc_HU&t=2s

Welcome to Part 8 of our comprehensive DSCR Loan Video Guide: DSCR Loan Purpose Basics: Acquisitions vs. Refinances (and Cash-Out Refinances vs. Rate-Term Refinances

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DSCR Loan Purpose: Acquisitions vs. Refinances

A straightforward but meaningful aspect of DSCR Loans is the loan purpose, or the reason a borrower is getting a DSCR Loan. Typically this is split into two categories*: *Acquisitions or using a loan, along with a “down payment” of cash, to purchase the property. The other category is *Refinances*, where the borrower already owns the property being mortgaged through the DSCR Loan, and is taking out a new loan to replace (by paying off the prior loan) the previous one or if the property is owned with no debt (called “free and clear” or “unencumbered” in real estate lingo), to take out a loan on the previously debt-free property.

DSCR Loans that are refinances are further split into two different categories as well, and are typically referred to as “Cash-Out Refinances” or “Rate-Term Refinances.” The key differences between these two types of refinance types is how much cash the borrower gets at closing. Generally, if the amount of the new loan is more than $2,000 greater than the balance of the prior loan plus closing costs and escrows, it is a cash-out refinance.

One of the great features of DSCR financing is the multiple reasons why they can be the choice for investors*. Using DSCR Loans for *acquisitions (i.e. to purchase a rental property) is pretty straightforward, it allows investors to use leverage to accelerate the growth of their portfolios and enhance returns via appreciation (as discussed in the section above).

Refinances can be done for many reasons and in many scenarios. One main motivator for refinances is if interest rates are more favorable, whether because market rates have fallen or a borrower’s credit profile has improved (or both) since origination and getting a new loan will be an improvement on the old one just in terms of a lower rate and monthly payment. DSCR Loans are a top option for the BRRRR Strategy which often includes using a hard money loan with a very short term (like 6-9 months) that needs to be refinanced quickly due to its rapid maturity. In addition, Cash-Out Refinances are extremely popular among real estate investors building wealth as it allows investors to turn equity “trapped” in the property into cash*, often allowing that cash to be deployed to earn higher returns, especially through buying more properties. Additionally, since cash-out refinances are loans, the *cash-out proceeds are not a taxable event, since it’s not income, it’s a new loan. This means that investors can access gains in real estate without selling the property, continuing to earn outsized returns and grow their portfolios without having to pay taxes on the returns (or at least defer taxes to the future).

👀📺In This Video, We Will Cover:

➡️👩‍🏫DSCR Loan Purpose Basics

➡️What a Acquisition (or "Purchase") DSCR Loan Is

➡️What a Refinance DSCR Loan Is

➡️What is a "Free & Clear" or "Unencumbered" Property In Real Estate

➡️Cash-Out Refinances 🆚Rate-Term (or Rate & Term) Refinances

➡️💸The $2,000 Rule for Refinances (Cash-Out vs. Rate-Term)

➡️🤔What is a Cash-In Refinance or "Bringing Cash To The Table"

➡️Why Real Estate Investors Use DSCR Loans?

➡️The Multiple Motivators for Why Real Estate Investors Refi

➡️Complete Side By Side Summary: Cash-Outs vs. Rate-Terms

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