How does a cash-out refinance on an investment property work?
A cash-out refinance on an investment property replaces your existing mortgage with a new, larger loan, typically up to 70 to 75 percent of the property's appraised value, with the difference between the new loan and your old balance paid to you at closing. Most lenders require 6 to 12 months of ownership before allowing cash-out, and the property must support the new payment through rent or income at the required coverage ratio.
The mechanics
- Apply for the new loan sized against the current appraised value.
- The appraisal establishes value, which may be higher than your purchase price.
- The new loan pays off your existing mortgage balance in full.
- Remaining proceeds, minus closing costs, are wired to you at closing.
| Item | Typical standard |
|---|---|
| Maximum loan-to-value | 70 to 75 percent |
| Seasoning | 6 to 12 months of ownership |
| Coverage (DSCR loans) | 1.00 to 1.25 depending on lender |
| Credit | 660 and up typical |
| Reserves | 6 months after closing |
| Rate | Typically 0.25 to 0.5 point above a rate-and-term refinance |
Ranges vary by lender.
A worked example
Property purchased 2 years ago for $350,000 with a $280,000 loan, now worth $500,000, rents for $3,200. At 70 percent loan-to-value, the new loan is $350,000. That pays off the $280,000 balance and leaves roughly $65,000 after closing costs, subject to the new payment being covered by rent at the required ratio.
What qualifies
- Property owned for the lender's seasoning period, or delayed financing rules if bought in cash.
- Sufficient equity that 70 to 75 percent of value exceeds the existing balance plus closing costs.
- For a DSCR cash-out, the new, larger payment covered by rent at 1.00 to 1.25 depending on the lender.
- For a conventional cash-out, your income covering the new payment along with other debts.
Why the rate is slightly higher
Lenders price cash-out slightly above rate-and-term because taking equity out increases the loan-to-value and, statistically, slightly increases default risk. The gap is usually a quarter to a half point.
Using the proceeds
Common uses: down payment on another property, paying off a higher-rate bridge or hard money loan, funding renovations elsewhere, or consolidating other debt. Lenders do not restrict use of proceeds on a business-purpose investment property refinance the way they might on a personal residence.
Where cash-out refinances get stuck
- The appraisal comes in below expectation, shrinking available proceeds.
- Coverage ratio fails at the higher loan amount; solution is to take a smaller cash-out amount.
- Seasoning not yet met.
- Credit or reserves fall short of the cash-out tier, which is often stricter than rate-and-term.
How CommFi handles it
Our lending desk runs the numbers against your current value and rent to show the maximum cash-out available before you apply. It funds direct when it fits, and when a lender with better cash-out terms for your property is the right match, the desk searches a database of 7,000+ lenders and the ones that fit compete for the file. Zero upfront fees.
Related reading
Related questions
- How much cash can I take out of an investment property?
- Typically up to 70 to 75 percent of the appraised value, minus your existing loan balance and closing costs.
- How long do I need to own a property before a cash-out refinance?
- Most lenders require 6 to 12 months, though delayed financing rules can shorten this after an all-cash purchase.
- Is a cash-out refinance rate higher than a rate-and-term refinance?
- Usually, by a quarter to a half point, because taking equity out increases the loan-to-value.
- Can I use cash-out proceeds for anything I want?
- On a business-purpose investment property, lenders generally do not restrict use of proceeds.
- What if my cash-out refinance appraisal comes in low?
- The available proceeds shrink accordingly. Providing strong comparable sales before the appraisal helps support the value.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.