DSCR Cash-Out Refinance: Rules, Ratio Requirements, and Post-Close Occupancy

DSCR cash-out refinances allow investors to extract equity from an existing rental property based on the property's income rather than the borrower's personal income. The rules around maximum LTV, DSCR thresholds, and seasoning are stricter for cash-out than for rate-term refinances, and pricing is typically 0.25 to 0.50% worse on the note rate.

Maximum LTV for Cash-Out

Most DSCR lenders limit cash-out refinance LTV to 75% for single-family investment properties and 70% for 2-4 unit properties, compared to rate-term refinance limits that often reach 80% LTV. Some lenders impose tighter LTV restrictions for loans above certain amounts (typically above $1.5 million) where execution risk is higher.

DSCR Thresholds on Cash-Out

• ✦Cash-out transactions typically require a minimum DSCR of 1.0 or higher -- no interest-only or sub-1.0 programs on cash-out
• ✦Some lenders require a 1.1 or 1.25 minimum DSCR for cash-out even when they allow lower ratios on rate-term refinances
• ✦The DSCR is calculated on the new loan (with the higher loan amount after cash-out), not the current loan
• ✦Rent must be supported by a current lease or market rent from the appraisal -- stale rent figures cause cash-out DSCR to fail

Seasoning Requirements

Most DSCR lenders require the borrower to have owned the property for at least 6 to 12 months before a cash-out refinance. The original purchase price must be disclosed, and lenders will cap the cash-out on properties purchased within the past 6 to 12 months at the lesser of the purchase price plus documented improvements or the appraised value. This prevents investors from inflating short-term appraisals.

Occupancy Verification and Fraud Prevention

DSCR loans are limited to non-owner-occupied investment properties. Most DSCR lenders include occupancy reps and warranty provisions that allow them to call the loan if the borrower is found to be using the property as a primary residence. Some lenders also require a signed investment intent letter at closing. For properties the borrower previously lived in before renting out, the 12-month seasoning provides distance from any owner-occupant representation.