Construction loan vs DSCR refi

Charlotte, North Carolina
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Construction loan vs DSCR refi

Adam Copley
Member since 2025 · 3 posts · 5 votes

I am nearing the final ~2 weeks of completing my first BRRRR. I took a hard money with a construction loan allowance which I have not drawn from yet.

Which is the preferred path. Draw from the construction loan to recoup the cash before refinancing, do a cash out DSCR refi directly after I get a lease signed? Keep in mind that the property is not currently leased and will likely not be rented for another month.

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
6mo
Quote from @Adam Copley:

I am nearing the final ~2 weeks of completing my first BRRRR. I took a hard money with a construction loan allowance which I have not drawn from yet.

Which is the preferred path. Draw from the construction loan to recoup the cash before refinancing, do a cash out DSCR refi directly after I get a lease signed? Keep in mind that the property is not currently leased and will likely not be rented for another month.


What happens if your do NOT do the last draw and then want to take out the cash during the refinance?

Your refinance may then be considered a cashout refi instead of a rate & term refi with a higher rate. 

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  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 665 votes
    6mo

    Well I would say draw as you need to keep up with Reno but you are going to pay more in interest by drawing the Reno funds than you would cashing out on stabilized debt. A lot of people I know put money on an interest free credit card for the first 12-18 months and pay it off before the interest kicks in. You can do a DSCR once the property is rented out and go up to 75% LTV across most cash out programs.

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  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 858 votes
    6mo

    Hi @Adam Copley, If you can, it usually makes sense to refi once the property is leased since DSCR lenders care a lot about stabilized income. That often gets you better terms and smoother approval.
    Drawing construction funds now can help with liquidity, but just make sure it doesn’t complicate your refi or add extra cost.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    6mo
    Quote from @Adam Copley:

    I am nearing the final ~2 weeks of completing my first BRRRR. I took a hard money with a construction loan allowance which I have not drawn from yet.

    Which is the preferred path. Draw from the construction loan to recoup the cash before refinancing, do a cash out DSCR refi directly after I get a lease signed? Keep in mind that the property is not currently leased and will likely not be rented for another month.


    What happens if your do NOT do the last draw and then want to take out the cash during the refinance?

    Your refinance may then be considered a cashout refi instead of a rate & term refi with a higher rate. 

    [email protected]248-209-6824
    Logical Property Management4.9458 Reviews
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    1Reply
  • Maria Valverde
    Lender · Charlotte, NC · Member since 2024 · 14 posts · 6 votes
    5mo

    You get better terms if it's rented but you don't have to wait for it to be rented since you are coming from a fix and flip/bridge loan. You could also be ready to close the refinance by the time it is rented. It depends on the bank the lender is using though. Some may want security deposit and first months rent reflected or even a seasoning period  

    The earlier point is true about it being a cash out vs a rate term depending on the equity you will have even after the construction funds you allotted. Cash out meaning you will pull out more than 2-3k at closing. If you're pulling out around 2-3k max that's a rate term and you get lower interest rates usually. 

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2d

    The property does not need to be leased to qualify for a DSCR cash out refi.

    Drawing from the line depends on if you finished the project & if you are trying to pull any cash out. If you finished the project and do not plan on doing a cash out, drawing from the line might help you get a better rate as a rate and term refi, as opposed to a cash out loan. Cash Out refis are typically more expensive than a rate and term refinance loan. This will also depend on the current LTV for the cash out & rate and term refi.

    I would suggest running both scenarios with a lender to make sure you aren't paying more for a refinance than you should.

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