You bought a rental two years ago. It has appreciated, the tenants are paying, and you want to redeploy that trapped equity into the next deal. A cash-out refinance lets you do exactly that, replace the old loan with a bigger one and pocket the difference. The only question that matters is whether the property still covers the new, larger payment. That is the DSCR test.
How a DSCR cash-out refi works
A cash-out refinance replaces your existing mortgage with a new, larger loan. The old balance gets paid off, and you receive the difference minus closing costs as cash. On a DSCR loan, the lender qualifies the deal based on the property's rent versus the new payment, not your personal income.
The calculator above defaults to a $400,000 property with a $240,000 balance. At 75% LTV, the max new loan is $300,000, leaving $60,000 in available equity. After roughly $6,000 in closing costs (2% of the new loan), the net cash out is about $54,000. The new monthly payment on $300,000 at 7.5% is approximately $2,098, and the DSCR with $3,200 in rent and $650 in expenses is roughly 1.22, viable but tight.
Worked example: pulling equity from an appreciated duplex
Say you bought a duplex in Memphis for $320,000 two years ago with a $256,000 loan at 6.5%. The property is now worth $380,000 and rents for $3,400/month with $700 in monthly expenses.
| Line item | Amount |
|---|---|
| Current value | $380,000 |
| Max loan at 75% LTV | $285,000 |
| Current balance | $256,000 |
| Gross cash available | $29,000 |
| Closing costs (2%) | $5,700 |
| Net cash out | $23,300 |
The new payment on $285,000 at 7.5% is about $1,993/month. NOI is $3,400 − $700 = $2,700. That gives a DSCR of 1.35, comfortable territory for most lenders. You walk away with $23,300 to deploy, the duplex still cash flows, and the DSCR gives room for rate increases or expense surprises.
When a cash-out refi makes sense
- Recycling capital. The classic use case. You locked $80,000 in a down payment 18 months ago, the property appreciated $60,000, and you want to redeploy that equity into another deal. The cost is a higher monthly payment on this property. The benefit is a second property generating its own returns. Portfolio-level math often wins even when single-property cash flow dips.
- BRRRR exit. Buy with hard money, rehab, rent, then refinance into a long-term DSCR loan and pull your rehab capital back out. The cash-out refi is the R that makes the cycle repeatable. The limiting factor is usually the post-rehab DSCR: if the rent does not support the new loan at 75% LTV, you leave capital trapped.
- Consolidating expensive debt. If you bought on a bridge loan at 10%+ and the property is now stabilized, refinancing into a 30-year DSCR loan at 7.5% drops the payment and creates cash flow that did not exist before.
- Funding a reserve account. Pulling $30,000 to $50,000 to create a cash reserve across your portfolio. Not the most common reason, but if three of your properties need roofs in the next five years, having the cash available beats a surprise $15,000 bill when you are illiquid.
When it does not make sense
- The DSCR drops below 1.0. If pulling cash pushes the new payment past what the rent covers, you are creating a monthly loss. Some investors do this in appreciation-heavy markets intentionally, but it is a bet on future value, not a cash flow decision.
- You are in a prepayment penalty window. Many DSCR loans carry a 3-year or 5-year prepayment penalty (often structured as 5-4-3-2-1% of the balance). If you are in year two and the penalty is 4%, refinancing a $250,000 balance costs $10,000 just to exit. Add closing costs on the new loan and the effective cost of the cash-out may exceed what you gain.
- Rates have risen significantly. If your current rate is 5.5% and the best DSCR rate available is 8%, the new payment on the same balance is already higher. Adding cash-out on top of that rate increase can blow through the DSCR threshold. Run the numbers before you assume it works.
The LTV constraint
Cash-out LTV on DSCR loans is almost always lower than purchase LTV. Where a lender might do 80% on a purchase, they will cap cash-out at 75% or even 70%. This matters because the gap between the two determines how much equity stays locked in.
| Max cash-out LTV | Max loan on $400K property | Cash available (from $240K balance) |
|---|---|---|
| 80% | $320,000 | $80,000 |
| 75% | $300,000 | $60,000 |
| 70% | $280,000 | $40,000 |
The 10-point spread between 70% and 80% LTV is $40,000 in available cash. That is the down payment on another property in markets like parts of Ohio, Indiana, or Tennessee. Knowing which lenders go to 80% on cash-out is worth shopping for.
Cash-out refi vs. other capital sources
| Source | Typical cost | Best for |
|---|---|---|
| Cash-out refi | 7-8.5% (30yr fixed) | Recycling equity, long-term hold |
| HELOC | Prime + 1-2% (variable) | Short-term bridge, hard to get on rentals |
| Selling the property | 5-6% commissions + capital gains | Full exit, maximum liquidity |
| Cross-collateral blanket loan | Similar to DSCR | Portfolio-level cash out across multiple properties |
Closing costs breakdown
The calculator estimates 2% of the new loan as closing costs. In practice, the actual number depends on the lender, state, and deal size. Here is what typically shows up on the settlement statement:
- Origination fee: 0.5% to 1.5% of the loan, the largest single item.
- Appraisal: $400 to $600 for a single-family, more for multifamily.
- Title insurance and search: $1,000 to $2,500 depending on the state.
- Recording and state fees: varies widely by county.
- Prepaid interest: prorated from closing to month-end.
Some lenders offer "no closing cost" refinances where they roll the costs into the rate. You pay nothing upfront but accept a higher rate for the life of the loan. On a 30-year hold, that is almost always more expensive. On a property you plan to sell or refinance again within five years, it can make sense.
How to maximize your cash-out
- Time the appraisal. The appraiser drives the LTV number. If you finished a rehab, make sure the work is visible and documented. Clean the property, fix curb appeal items, and provide a list of improvements with costs. A $20,000 bump in appraised value at 75% LTV is $15,000 more available cash.
- Shop lenders for LTV. The difference between 70% and 75% max LTV is significant. Some lenders go to 80% for borrowers with 740+ FICO and DSCR above 1.25. Getting one more quote can be worth $20,000+ in available equity.
- Raise rent before the refi. A higher rent improves the DSCR, which may unlock a higher LTV tier. If your property is $100/month below market, bringing it to market before you apply for the refi strengthens the deal on both the income and the ratio.
- Challenge the tax assessment. Lower taxes mean a lower PITIA, which improves the DSCR. In states with high property taxes like Texas, New Jersey, or Illinois, a successful appeal can move the DSCR by 0.03 to 0.05.
Frequently asked questions
How much cash can I pull out of a rental property?
Most DSCR lenders cap cash-out refinances at 75% LTV. On a property worth $400,000 with a $240,000 balance, the max new loan is $300,000, leaving $60,000 available before closing costs. After roughly 2% in closing costs ($6,000), you net about $54,000. Some lenders go to 70% LTV on cash-out; a few will stretch to 80% with a strong DSCR and high FICO.
What DSCR do I need for a cash-out refinance?
Most lenders want at least 1.0, and 1.20+ gets you better pricing and fewer conditions. The higher the cash-out amount, the larger the new loan, the higher the payment, and the lower the DSCR. A deal that qualifies at 75% LTV might not qualify at 80%. Run both scenarios before you apply.
What are closing costs on a cash-out refi?
Expect roughly 2% to 3% of the new loan amount. On a $300,000 refinance, that is $6,000 to $9,000. This comes off the top of your cash-out proceeds, not out of pocket. Some lenders roll closing costs into the loan, but that increases your balance and lowers the DSCR further.
Can I cash-out refi into a DSCR loan?
Yes, and this is one of the most common uses. Investors buy a property with hard money or conventional financing, stabilize it (rehab, lease up), then refinance into a 30-year DSCR loan and pull cash out in the same transaction. The key constraint is the DSCR on the new payment: if the rent does not cover the bigger loan, the lender either reduces the LTV or declines the deal.
How long do I have to wait before a cash-out refinance?
Seasoning requirements vary by lender. Some require 6 months of ownership, others 12 months. A few will do delayed financing with no seasoning if you purchased all-cash. On a BRRRR deal, the seasoning clock starts at purchase, not at the end of rehab, so plan accordingly.
Does a cash-out refi hurt my cash flow?
Almost always. You are increasing the loan balance, which increases the payment. The question is whether the lump sum you receive is worth more deployed elsewhere than the monthly cash flow you give up. If you pull $50,000 and buy another property that cash flows $400/month, the portfolio-level return is higher even if this individual property's cash flow drops by $200/month.
What is the difference between a cash-out refi and a HELOC?
A cash-out refi replaces your existing loan with a larger one and gives you the difference as cash. A HELOC sits behind your first mortgage as a second lien with a variable rate and draw period. HELOCs are harder to get on investment properties, most HELOC lenders only do primary residences. For rentals, the cash-out DSCR refi is the standard tool.
Can I do a cash-out refi on a short-term rental?
Yes, but the underwriting is tighter. Lenders that accept STR income typically use either 12-month actual revenue from Airbnb or a third-party rent projection. The LTV may be capped 5% lower than a long-term rental (70% instead of 75%), and they may require a higher DSCR. Not all lenders accept STR income, so confirm before you apply.