🤔What is a Cash-Out Refinance vs. a Rate-Term Refinance?
➡️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. So if the borrower walks away with greater than $2,000 at closing (the typical threshold to delineate cash-out vs. rate-term refinances, also can sometimes be the greater of 2% of new loan amount or $2,000), it is a cash-out refinance. This would also include essentially all refinance transactions on properties previously owned free and clear, as the “balance of the prior loan” in this case would be $0.

All other refinances, where the new loan minus any prior loan balance and closing costs and escrows is either less than $2,000 or negative, would be considered rate-term refinances, as the investor would only walk away with at most, minimal cash proceeds from the transaction. In cases where the formula results in a negative number (i.e. the new loan amount is less than the balance of the prior loan being paid off plus escrows and closing costs), then the borrower must cover the difference at closing out of their personal assets. This is typically referred to in industry lingo as "bringing cash to the table" on a refinance transaction. While these types of refinances fall under the rate-term refinance bucket, some people have begun referring to these types of refinances (typically snarkily) as "cash-in refinances," but for purposes of DSCR Loans when it comes to qualification, pricing and everything else, are treated and labeled the same as other rate-term refinances where very slight proceeds (under $2,000) are received.

DSCR Loan Purpose Basics: Acquisitions vs. Refinances (& Rate-Term Refis vs. Cash-Out Refis)
https://harpooncapital.com/dscr-loans-guide/dscr-loan-purpos...

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