A question about cash out refi on first STR

New Orleans, Louisiana
Creative Real Estate Financing
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A question about cash out refi on first STR

Ben Tharpe
Member since 2022 · 11 posts · 2 votes

Hi, all. This is my first post. Thanks so much for any responses. Been lurking for a while but couldn't find any guidance for this question. I just bought my first STR in Louisiana about a month ago and actively renting it out. Due to being self employed, my local mortgage lender required me to put $90,000 (40%) down on a $221,000 house since it was an investment property. (I already have a primary residence that I own) Sometime in the next year or so, I would like to do a cash out refi to use some equity to put towards my second rental property. Will a dscr loan work as a cash out refi? Meaning that they wouldn't need my tax returns and allow me to refinance with them and pull all of the equity out minus the typical 20% down. Since conventional loans require me to put so much down on investment, I'm thinking everything should be dscr for now?

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Paul Garwol
Lender · Nationwide · Member since 2022 · 46 posts · 28 votes
4y

Ben,

You could cash out refi into a DSCR loan. Your tax returns or income will not be required. There are lenders that will cash out up to 80%. Also you can use the short term rental print out from Airbnb or Vrbo showing the rental income. If you have not owned it for 12 months it can be supplemented with a Airdna report or the appraiser giving a short term rental estimate on the 1007 report using short term comps in the area.

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  • Ernesto Garcia
    Lender · Long Beach, CA · Member since 2019 · 67 posts · 15 votes
    4y

    Ben, 

    A DSCR for an STR can definitely be done. The caveat for this is that we would have to use the market rents instead of the Airbnb/VRBO income. Assuming the market rents hold up a minimum of a 1.1 DSCR and strong FICO cashing out is feasible.

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  • Josh Edwards
    Lender · Bend, OR (bend) · Member since 2019 · 17 posts · 8 votes
    4y
    Quote from @Ernesto Garcia:

    Ben, 

    A DSCR for an STR can definitely be done. The caveat for this is that we would have to use the market rents instead of the Airbnb/VRBO income. Assuming the market rents hold up a minimum of a 1.1 DSCR and strong FICO cashing out is feasible.


    There are some lenders that will allow for income from Airbnb/VRBO to be used in debt calculation instead of market rents. Generally you need 12 month history of STR income verified by 3rd party (Airbnb, VRBO, property management company, etc.), but some will allow for qualifying off AirDNA data (higher down payment/rates)

    1Reply
  • Ben Tharpe
    OP
    Member since 2022 · 11 posts · 2 votes
    4y

    Thanks so much for the quick replies. Much appreciated guys

    0Reply
  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    4y

    Like the others mentioned, not all lenders will look at income from STR and the ones that do typically require at least a 12 month history and/or allow for a lower max LTV. It's more likely that market rents as if it were a LTR will be considered. To answer your question though, you can definitely use DSCR to cash out refi without income/employment/DTI being factors.

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  • Brandon BeardtPro Member
    Lender · La Crescenta, CA · Member since 2021 · 261 posts · 157 votes
    4y
    Quote from @Ben Tharpe:

    Hi, all. This is my first post. Thanks so much for any responses. Been lurking for a while but couldn't find any guidance for this question. I just bought my first STR in Louisiana about a month ago and actively renting it out. Due to being self employed, my local mortgage lender required me to put $90,000 (40%) down on a $221,000 house since it was an investment property. (I already have a primary residence that I own) Sometime in the next year or so, I would like to do a cash out refi to use some equity to put towards my second rental property. Will a dscr loan work as a cash out refi? Meaning that they wouldn't need my tax returns and allow me to refinance with them and pull all of the equity out minus the typical 20% down. Since conventional loans require me to put so much down on investment, I'm thinking everything should be dscr for now?


     Hi Ben,

    Congrats on getting your first STR! Yes, you would be able to use a DSCR loan for a cash-out refinance. Typically LTV is capped at 75% for that kind of scenario, but considering you already have quite a bit of equity in the property, I would imagine it would be fine. DSCR lenders won't have to look at any of your personal income verification documents or look at DTI. Considering you're planning on doing the cash-out refi in a year or so, and the property is a STR, the lender will more than likely go off of the 12 month average rental income for qualification. Out of curiosity, did you have to put down 40% to keep in line with DTI?

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  • Ben Tharpe
    OP
    Member since 2022 · 11 posts · 2 votes
    4y

    Yes, I had to put that amount down due to DTI. Which is why I'm very interested in dscr loans. I am going to show much more of my income next tax return though so I can attempt some conventional loans as well

    0Reply
  • Paul Garwol
    Lender · Nationwide · Member since 2022 · 46 posts · 28 votes
    4y

    Ben,

    You could cash out refi into a DSCR loan. Your tax returns or income will not be required. There are lenders that will cash out up to 80%. Also you can use the short term rental print out from Airbnb or Vrbo showing the rental income. If you have not owned it for 12 months it can be supplemented with a Airdna report or the appraiser giving a short term rental estimate on the 1007 report using short term comps in the area.

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
    4y

    Be careful with your future planning.

    If the economy continues to slow, many lenders will close their doors, so your options will diminish. Loan critieria will also narrow, making it more difficult to get cash out of investments.

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3w

    Hey Ben,

    At the time of this reply you can now finance a property with a DSCR loan with a 15% minimum down payment. You may also cash out up to 80% LTV. Lenders do not look at your personal income to qualify, rather they look at your credit, DSCR, reserves, and experience.

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