DSCR Cash-out Refi Options

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DSCR Cash-out Refi Options

Rob Schou
Real Estate Agent · Southern Maryland · Member since 2021 · 22 posts · 14 votes

Hey all!

Long story short, I want to finally refinance a property we bought and rehabbed in 2022. The low interest rate on the property has been holding me back from refinancing but a great opportunity has come up and I want to move the equity to the new project. Any recommendations on who to use for a DSCR cash-out refi? Has anyone ever found a DSCR HELOC product?

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Mark MunsonBusiness Member
Lender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
2y

Hi @Rob Schou

    To echo what others have said above, use the Find a Lender tab and call around to as many as you can. You'll want to ask a few things: 

1. Do you lock my interest rate and when? The right answer to this is they should lock your rate for 30 to 45 days and do so immediately upon your credit being pulled and the application submitted. 

2. What is your debt service coverage ratio? You want a ratio of 1 to 1, anything higher is more restrictive and can mean you will get less money then you are after. 

3. What is your maximum LTV on a cash-out refinance? Most lenders are at 75% LTV, but some go to 80%. 80% LTV will increase your rate fairly significantly.

4. Can you send me a formal term sheet? Make sure you get a formal term sheet to compare apples to apples, don't accept soft quotes. 

5. What is your prepayment penalty length and structure? Aim for a 3-year penalty; and a stepdown structure is most preferred. 

6. What is your closing time frame? Should be about 24 days. 

7. Do you offer buy downs? Some lenders can offer buy downs and even roll that cost into the loan. 

8. What are your fees? This should be outlined on the formal quote, but most will have origination points and an underwriting fee (this is also referred to as processing or service fee too). 

9. Can I roll my origination fee into the loan? Some lenders offer this as well, but usually at 70% LTV and no greater.

10. How much will the appraisal cost me? Some lenders have fixed costs, but most will go through an Appraisal Management Company for bids. Some lenders also upcharge you and use this as a profit center, so avoid that if you can. 

Feel free to reach out if you need any advice. Best of luck!

[email protected]407-900-8799
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  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
    2y

    Hi Rob, DSCR HELOCS do not exist. There are HELOC seconds but the blended rate most of the time is higher than a traditional cash out. You will find a ton of qualified lenders under the find a lender tab. You should be able to cash out up to 75ltv on this asset as long as DSCR is above 1.00 Good luck!

    [email protected]860-538-3672
    ProAlpha Capital56 Reviews
    WebsiteView Page
    1Reply
  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    2y

    Hi Rob,

    There are line of credits out there for investment properties, typically financed by local banks, but the rates are higher and the LTV is usually much lower. There are plenty of DSCR lenders out there that can assist you with the refinance - I'd recommend checking their reviews and going off of who you feel can best assist you.

    310-848-9776
    0Reply
  • Mark MunsonBusiness Member
    Lender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
    2y

    Hi @Rob Schou

        To echo what others have said above, use the Find a Lender tab and call around to as many as you can. You'll want to ask a few things: 

    1. Do you lock my interest rate and when? The right answer to this is they should lock your rate for 30 to 45 days and do so immediately upon your credit being pulled and the application submitted. 

    2. What is your debt service coverage ratio? You want a ratio of 1 to 1, anything higher is more restrictive and can mean you will get less money then you are after. 

    3. What is your maximum LTV on a cash-out refinance? Most lenders are at 75% LTV, but some go to 80%. 80% LTV will increase your rate fairly significantly.

    4. Can you send me a formal term sheet? Make sure you get a formal term sheet to compare apples to apples, don't accept soft quotes. 

    5. What is your prepayment penalty length and structure? Aim for a 3-year penalty; and a stepdown structure is most preferred. 

    6. What is your closing time frame? Should be about 24 days. 

    7. Do you offer buy downs? Some lenders can offer buy downs and even roll that cost into the loan. 

    8. What are your fees? This should be outlined on the formal quote, but most will have origination points and an underwriting fee (this is also referred to as processing or service fee too). 

    9. Can I roll my origination fee into the loan? Some lenders offer this as well, but usually at 70% LTV and no greater.

    10. How much will the appraisal cost me? Some lenders have fixed costs, but most will go through an Appraisal Management Company for bids. Some lenders also upcharge you and use this as a profit center, so avoid that if you can. 

    Feel free to reach out if you need any advice. Best of luck!

    [email protected]407-900-8799
    CapSource LLC4.947 Reviews
    WebsiteView Page
    2Reply
  • Kristen L GarnerBusiness Member
    Lender · Phoenix, AZ · Member since 2021 · 451 posts · 287 votes
    2y

    Hey Rob! It depends on how much equity you need to pull out and how long you think you will need it for. I'd run the numbers for a DSCR cash out refi and compare them next to a HELOC and a HELOAN. If you cannot qualify conventionally for a HELCO or HELOAN you could try a non-QM second mortgage.

    [email protected]213-880-0434
    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    Hey Rob ! What type of property ? How much is it worth ? Where is it located ? How does the rent roll look ? 

    0Reply
  • Alex Hunt
    Lender · Member since 2022 · 441 posts · 134 votes
    2y

    There are 2nd position mortgages for rental properties 1-4 units. DSCR still needs to be 1.00 after both 1st & 2nd payment, 75%CLTV. This would allow you to keep that low 1st position rate.
    Happy to connect on this, send a message!

    0Reply
  • Rob Schou
    OP
    Real Estate Agent · Southern Maryland · Member since 2021 · 22 posts · 14 votes
    2y
    Quote from @Jacob Sherman:

    Hey Rob ! What type of property ? How much is it worth ? Where is it located ? How does the rent roll look ? 


    SFH Located in Leonardtown, MD. Worth 400k and 240k principal balance. Currently rented for $2550

    0Reply
  • Rob Schou
    OP
    Real Estate Agent · Southern Maryland · Member since 2021 · 22 posts · 14 votes
    2y
    Quote from @Kristen L Garner:

    Hey Rob! It depends on how much equity you need to pull out and how long you think you will need it for. I'd run the numbers for a DSCR cash out refi and compare them next to a HELOC and a HELOAN. If you cannot qualify conventionally for a HELCO or HELOAN you could try a non-QM second mortgage.


    Thanks! What's the best source for non-QM second mortgages? I cannot qualify for a traditional HELOC due to being self-employed/real estae agent

    1Reply
  • Kristen L GarnerBusiness Member
    Lender · Phoenix, AZ · Member since 2021 · 451 posts · 287 votes
    2y
    Quote from @Rob Schou:
    Quote from @Kristen L Garner:

    Hey Rob! It depends on how much equity you need to pull out and how long you think you will need it for. I'd run the numbers for a DSCR cash out refi and compare them next to a HELOC and a HELOAN. If you cannot qualify conventionally for a HELCO or HELOAN you could try a non-QM second mortgage.


    Thanks! What's the best source for non-QM second mortgages? I cannot qualify for a traditional HELOC due to being self-employed/real estae agent

     @Rob Schou I sent you a DM.

    [email protected]213-880-0434
    0Reply
  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    2y

    @Rob Schou You have the pick of the litter with find a lender tool. Ask any questions that come up but your best use of time is cost benefit between a second position (blended rate calculation) or a full cash out refinance. 

    0Reply
  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
    2y

    @Rob Schou

    If you can prove that this is your primary residence, a HELOC achievable.

    [email protected]
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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 513 votes
    2y

    You will get a better rate on a first DSCR loan compared to an investment property HELOC. Investment property HELOCs are hard to find but a closed end 2nd mortgage on an investment property is going to easily be in the 10s and up for an interest rate.

    More about 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 lenders

    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 = 1.23

    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.

    [email protected]818-770-0340
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    2Reply
  • River SavaPro Member
    Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
    2y

    Hey Rob! 

    As others have mentioned, there is no such thing as a DSCR HELOC. All the terminalogy can be very confusing. I would look into numbers for a cash out refi and compare. Would love to connect with you and point you in the right direction.

    [email protected]
    1Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @Rob Schou:

    Hey all!

    Long story short, I want to finally refinance a property we bought and rehabbed in 2022. The low interest rate on the property has been holding me back from refinancing but a great opportunity has come up and I want to move the equity to the new project. Any recommendations on who to use for a DSCR cash-out refi? Has anyone ever found a DSCR HELOC product?


    You may do a standalone DSCR second mortgage. The rate will be high on the second though, so you may need to factor the blended rate.

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
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    0Reply
  • Rob Schou
    OP
    Real Estate Agent · Southern Maryland · Member since 2021 · 22 posts · 14 votes
    2y
    Quote from @Jake Baker:

    @Rob Schou

    If you can prove that this is your primary residence, a HELOC achievable.


     Nope, can't prove it's my primary

    0Reply
  • Ammabelle Canoy
    Member since 2024 · 33 posts · 3 votes
    2y

    @Rob Schou Hi congrats on the Refi, I know someone who does DSCR cash-out refi, Happy to connect.

    0Reply
  • Joseph Pappas
    Lender · Nationwide · Member since 2024 · 12 posts · 5 votes
    2y
    0Reply
  • Dylan Massey
    Lender · Springfield Missouri · Member since 2023 · 6 posts · 4 votes
    2y

    Hey Rob! 

    There are some great options out there right now for cash out refi's. I think a great route would be pulling out he equity from the home to help with this new project you are looking at, and making sure you get a low pre payment penalty on the cash out refi. With that, you can do a rate and term refi in a year or two when rates have trickled down, and you can get the new deal done. We have some really great options right now that will offer low pre pays. Let me know if you have any interest in that! I hope you are able to get into that new project!


    -Dylan Massey

    0Reply
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