I just bought a SFR at auction, my second time buying at auction. After rehab is done, the plan is to use a DSCR to cash it out. I'm interested in thoughts on cashing it out instead with a 1st position HELOC, considering those who talk about paying off loans in less than 10 years by using this method. I'm just not savvy enough to run the numbers and would appreciate hearing both from those who have first hand experience on the topic, and from those who could get the deal done for me… if it makes sense to do it. Thanks.
Lender · Member since 2022 · 1k+ posts · 503 votes
3mo
Generally an investment property HELOC is going to have a lower LTV compared to an owner occupy home HELOC. A DSCR cash out refinance loan depending on the borrower's credit score and property location can generally get up to 75% of the new appraised value. Also, there's waiting times or seasoning which is how long you have to wait from the last transaction to the new one to use the new appraised value for the cash out refinance. This waiting time or seasoning varies by loan product and for some loan products like DSCR loans, this will vary by lender. DSCR loan guidelines that impact LTV are generally set by the lender and will usually vary lender by lender.
A HELOC will be a debt to income / DTI loan that will be underwritten by the borrower's personal income. A DSCR loan is underwritten by the actual or projected rent for the investment property.
More 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. 760-780+ 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 = 1.23
If 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.
Thanks so much — this is really helpful. The DSCR breakdown especially. I’ve been trying to wrap my head around how to finance a first deal without leaning on my W-2, and the idea of underwriting on the property’s rents instead of my personal income is a game changer for how I’ve been thinking about it.
A few follow-ups if you don’t mind:
• For mixed-use historic buildings (say ground-floor retail or F&B with residential or office above), do DSCR loans still work, or does that kick you into commercial territory with different terms?
• On the seasoning question — if I bought a value-add building, stabilized it over 12–18 months, and wanted to cash out refi, is there a typical seasoning window I should plan around?
• Any lenders you’d recommend who are comfortable with adaptive reuse or historic properties in Colorado specifically? I’ve heard C-PACE can layer in for the mechanicals side but I’m still learning how those pieces fit together.
Would definitely love to connect .
Loran
Thanks so much — this is really helpful. The DSCR breakdown especially. I’ve been trying to wrap my head around how to finance a first deal without leaning on my W-2, and the idea of underwriting on the property’s rents instead of my personal income is a game changer for how I’ve been thinking about it.
A few follow-ups if you don’t mind:
• For mixed-use historic buildings (say ground-floor retail or F&B with residential or office above), do DSCR loans still work, or does that kick you into commercial territory with different terms?
• On the seasoning question — if I bought a value-add building, stabilized it over 12–18 months, and wanted to cash out refi, is there a typical seasoning window I should plan around?
• Any lenders you’d recommend who are comfortable with adaptive reuse or historic properties in Colorado specifically? I’ve heard C-PACE can layer in for the mechanicals side but I’m still learning how those pieces fit together.
Would definitely love to connect .
Loran
Hi Loran, sure, you're welcome- I'm glad you found my response helpful. I'll send you a message to connect to discuss your questions.
Lender · Miami, FL · Member since 2025 · 123 posts · 34 votes
3mo
Hi Alan,
Many investors leverage DSCR HELOCs to help fund their next purchase (BRRRR). The reason is because you can take the money in and out and only pay interest when you need it.
If you're wanting to use it simply in lieu of a regular mortgage, getting a regular DSCR loan and paying more than the minimum might make more sense if the goal is to get out of debt early.
@Juan Yepes Yes, I am wondering about a HELOC in lieu of a DSCR. Yes, others have also suggested a DSCR with extra monthly payments to accelerate the timeline to paying off the loan. Thank you for your private message. I also replied to you there.
@Chris Seveney yes, I'm not overly versed in bridge loans but I'm aware that they exist. But I do have enough cash available to do the rehab, so I don't think I need a bridge loan for this current project. Thank you.
I just bought a SFR at auction, my second time buying at auction. After rehab is done, the plan is to use a DSCR to cash it out. I'm interested in thoughts on cashing it out instead with a 1st position HELOC, considering those who talk about paying off loans in less than 10 years by using this method. I'm just not savvy enough to run the numbers and would appreciate hearing both from those who have first hand experience on the topic, and from those who could get the deal done for me… if it makes sense to do it. Thanks.
@Alan Mills That's an interesting comparison. A lot depends on your goals—whether maximizing cash-out, keeping monthly payments lower, or preserving flexibility for your next deal. Your expected ARV, rental income, and equity position will usually determine which option makes more sense. Have you already estimated what the property should appraise and rent for after the rehab?
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