Yes, you can do a cash-out refinance on a rental property, and it's one of the most common ways investors pull equity to buy their next property. On a conventional loan, you can usually borrow up to 75% of the home's value on a single-unit rental, or 70% on a 2–4 unit property, as long as you meet the seasoning and reserve rules. DSCR loans offer another route that qualifies mainly on the property's rent instead of your personal income. The right choice depends on how you want to qualify, how long you've owned the property and what you plan to do next.
I'm Paul Mattos, a mortgage broker in Fort Mill, SC, licensed in North and South Carolina. I help investors around Charlotte refinance rentals to fund their next purchase, and the details below are what usually decide which loan works.
How a Cash-Out Refinance on a Rental Works
A cash-out refinance replaces your current mortgage with a new, larger one. The new loan pays off the old loan, and you receive the difference in cash, minus closing costs. If the rental is owned free and clear, the whole loan amount, minus costs, comes to you.
Investors commonly use the cash to:
Make a down payment on another rental
Renovate or improve a property
Pay off higher-cost debt, like a hard money or rehab loan
Build reserves for a growing portfolio
How Much Equity Can You Pull Out?
How much you can borrow depends on the property's appraised value and the loan program.
Conventional loans (Fannie Mae and Freddie Mac):
Up to 75% of the value on a single-unit investment property
Up to 70% of the value on a 2–4 unit investment property
DSCR loans:
Often up to about 75% of the value, depending on the lender, your credit score and the property's rent compared with its payment
Some lenders go higher or lower based on the property type, loan size and how long you've owned it
Your remaining equity stays in the property. Credit score, the property's condition and your reserves can all affect the final terms.
Seasoning: How Long You Need to Own the Property
Seasoning rules are where many investors get stuck.
Conventional seasoning
For a conventional cash-out refinance, Fannie Mae generally requires:
That you've owned the property for at least six months before the new loan
That any existing first mortgage being paid off is at least 12 months old
If the property was held in an LLC you majority-own or control, that time can usually count toward your ownership period, but the property has to be moved into your personal name before closing. See buying a rental in an LLC or your own name.
Delayed financing
If you bought the rental with cash, Fannie Mae's delayed financing exception can let you do a cash-out refinance without waiting six months. The cash you can take out is generally limited to what you put into the purchase, and you'll need documentation of where that money came from. Fannie Mae explains the rules in its cash-out refinance guidelines.
DSCR seasoning
DSCR lenders set their own seasoning rules. Some allow a cash-out refinance after a few months of ownership, while others require longer. Many base the loan on the lower of your purchase price plus documented improvements or the current appraised value until you've owned the property for a set time. That matters if you're doing a BRRRR (buy, rehab, rent, refinance, repeat) and want to refinance based on the after-rehab value.
Conventional vs. DSCR for a Rental Cash-Out
Conventional cash-out refinance
How you qualify: Your personal income, credit, debts and assets. Rental income usually counts based on your tax returns or a lease, depending on your situation.
Why investors choose it:
Pricing is often better than DSCR, depending on your profile
No prepayment penalty
Standard fixed-rate terms
Limits:
Has to close in your personal name
Limits on how many financed properties you can have
Higher reserve requirements as you own more financed properties
DSCR cash-out refinance
How you qualify: Mainly on the property's rent compared with its new monthly payment, plus your credit and assets. No personal income documentation in most cases.
Why investors choose it:
Can usually close in an LLC
Works well if your tax returns show low income after write-offs
No conventional cap on the number of financed properties
Limits:
Pricing is usually higher than conventional
Most DSCR loans have a prepayment penalty. See DSCR prepayment penalties explained.
The new payment has to fit the property's rent, which can limit how much cash you can take out
See my DSCR loans page and investment property loans page for more on each.
Other Ways to Pull Equity for Your Next Purchase
A cash-out refinance on the rental isn't your only option.
A HELOC on your primary residence lets you keep the first mortgages on both properties. It's often a good fit if you have a low rate on your rental that you don't want to give up. See my HELOC page and HELOC vs. cash-out refinance.
A HELOC or home equity loan on the rental is available from some lenders, though fewer offer them on investment properties.
Selling and doing a 1031 exchange can let you trade up into a larger property while deferring capital gains tax. See using a 1031 exchange with financing.
Is a Cash-Out Refinance on Your Rental a Good Idea?
It can be, but run the numbers first. Before you refinance, look at:
Your current rate. If your existing rental loan has a low rate, a cash-out refinance replaces it with a new rate on a larger balance. A HELOC on another property may cost less overall.
Your cash flow. A larger loan means a higher payment. Make sure the rent still covers the payment, taxes, insurance, HOA dues, repairs and vacancy.
Your plan for the cash. A cash-out makes the most sense when the money goes toward something with a clear return, like another rental or a value-adding renovation.
Your reserves. Lenders want to see reserves after closing, especially if you own several financed properties.
Taxes. How the interest is treated depends on how you use the money. Talk with a CPA. If you need one, see my list of trusted vendors.
What You'll Need
For most rental cash-out refinances, expect to provide:
Current mortgage statements for the property
Leases for the rental, and sometimes proof of rent received
Homeowners or landlord insurance declarations
Bank and asset statements for reserves
Tax returns and income documents for a conventional loan
LLC documents if you're refinancing in an LLC with a DSCR loan
A list of improvements and receipts, if you're asking the lender to recognize renovation costs
Frequently Asked Questions
Can I do a cash-out refinance on an investment property?
Yes. Conventional loans and DSCR loans both allow cash-out refinances on rentals, each with its own limits and qualifying rules.
How much cash can I take out of my rental property?
On a conventional loan, usually up to 75% of the value on a single-unit rental or 70% on a 2–4 unit property, minus your existing loan balance and costs. DSCR limits vary by lender, often up to about 75%.
How long do I have to own a rental before a cash-out refinance?
For a conventional loan, generally six months, and any existing first mortgage has to be at least 12 months old. DSCR seasoning varies by lender. If you bought with cash, delayed financing may let you refinance sooner.
Can I do a cash-out refinance on a rental in an LLC?
Usually with a DSCR loan, yes. A conventional cash-out requires moving the property into your personal name before closing.
Is a HELOC better than a cash-out refinance on a rental?
It depends on your current rate and plans. A HELOC lets you keep your existing first mortgage, while a cash-out refinance replaces it. Compare both before you decide.
Does a cash-out refinance on a rental have a prepayment penalty?
Conventional loans don't. Most DSCR loans do, so match the prepayment term to how long you'll keep the loan.
Let's Find the Best Way to Pull Your Equity
If you're thinking about refinancing a rental to buy your next property, I can compare a conventional cash-out, a DSCR cash-out and a HELOC side by side so you can see which one leaves you in the best position. As a mortgage broker, I compare investment loan options from multiple wholesale lenders in North and South Carolina. Schedule a consultation or start your application.
Paul Mattos
Mortgage Broker | Refine Mortgage
Carolina Home Financing
NMLS# 2339069 | Licensed in NC and SC
Call or text: 980-221-4959
Email: paulm@refinemortgage.net
Refine Mortgage Inc. | NMLS# 2417960 | Equal Housing Lender. This article provides general educational information and is not a commitment to lend, a rate quote, or tax or legal advice. Loan-to-value limits, seasoning and reserve requirements vary by lender and loan program and can change. Financing is subject to credit, income, assets, appraisal, title and underwriting requirements. Not all applicants will qualify.
