Cash-out refinance on an investment property: requirements and how it works

The steps look like any refinance, with the rental's income and leases playing a bigger part. The amount you can take is the appraised value times the lender's cap, minus your payoff, minus closing costs.

• You choose a program, usually conventional or DSCR, based on how you want to qualify and whose name the property is in
• The lender orders an appraisal, often with a rent schedule that estimates market rent
• You provide leases, mortgage statements, insurance and, for a conventional loan, tax returns
• The lender checks seasoning, reserves, credit and either your debt-to-income ratio or the property's rent coverage
• At closing, the new loan pays off the old one and the remaining funds are paid to you

Conventional rules come from the Fannie Mae Selling Guide and Freddie Mac Seller/Servicer Guide. DSCR and other non-QM lenders set their own, so the details vary from lender to lender.

• Loan-to-value cap. Commonly 75% for a single-unit rental and 70% for two to four units on a conventional loan, with DSCR programs in a similar range. You need to leave that much equity in the property.
• Seasoning. A conventional cash-out generally needs the existing mortgage seasoned, commonly 12 months. Many DSCR programs allow it after about six months of ownership.
• Credit. Minimum scores are usually higher for investment property cash-out than for a primary home, and stronger credit can raise the cap.
• Reserves. Savings covering several months of payments, verified from statements. Conventional loans may also require reserves for your other financed properties.
• Income or rent coverage. Your full debt-to-income ratio on a conventional loan, or the property's rent compared with the new payment on a DSCR loan.
• Property type. One- to four-unit residential rentals are standard. Condos, short-term rentals and mixed-use buildings can have extra rules.

A conventional cash-out is usually the lower-cost route if your tax returns show enough income and the property is in your personal name. The lender counts a share of the rent, commonly 75% of the lease to allow for vacancy and upkeep, and weighs it against every debt you carry. Depreciation and a large portfolio can work against you even when the rentals are profitable.

A DSCR loan sets your personal income aside and asks whether the rent covers the new payment, including taxes, insurance and HOA dues. It closes in an LLC, has no portfolio count limit on most programs, and often allows an earlier cash-out. The trade-off is usually higher pricing. Our DSCR loan requirements guide and how to calculate DSCR explain the ratio, and the DSCR cash-out refinance page covers the program.

If you paid cash for a rental, Fannie Mae's delayed financing exception can let you take cash out soon after the purchase instead of waiting out the usual seasoning, as long as the purchase was an arm's-length transaction and you can document where the funds came from. The amount is generally limited to what you put into the purchase. Some DSCR programs offer a similar option. Ask about it before you close the purchase if the plan depends on getting your cash back quickly.

• Pricing on investment property loans is usually higher than on a primary home, and cash-out adds further adjustments
• Closing costs apply, including an appraisal and often a rent schedule; they can be paid at closing or taken from the proceeds
• A larger loan means a larger payment, which lowers your monthly cash flow and, on a DSCR loan, the ratio
• You replace the entire first mortgage, so you give up the terms on your current loan
• Prepayment penalties are common on DSCR loans, so check them if you may sell or refinance again soon

Our refinance calculator guide shows how to compare the new loan with the old one, and the cost to refinance explains each closing cost.

• You want to keep your current first mortgage. A HELOC on an investment property borrows against equity without replacing it.
• You only want better terms, not cash. A rate-and-term refinance can allow higher leverage. See investment property refinance.
• Your income is hard to document. Look at bank statement loans or the non-QM loan overview.
• The cash is for your own home's equity. The cash-out refinance page covers primary residences.

Fannie Mae Selling Guide sections on cash-out refinance transactions, continuity of obligation and delayed financing, rental income, and the Eligibility Matrix; Freddie Mac Single-Family Seller/Servicer Guide on cash-out refinance mortgages and rental income; and IRS Publication 527, Residential Rental Property. Program rules change; your lender applies the version in force when you apply.

8Twelve is a mortgage broker, not a lender. We look at your rental, how you want to qualify and whose name it's in, compare conventional and DSCR options across our lender network, and show you the trade-offs side by side before you commit to anything.