Quick Answer
Purchase DSCR loans typically offer better rates and terms than cash-out refinances, with 0.25-0.50% lower rates and 5-10% higher maximum LTV. Cash-out refinances extract equity but increase debt service, potentially reducing DSCR below qualification thresholds. Model both scenarios to determine whether purchasing new properties or extracting equity from existing holdings better serves your portfolio growth strategy.
Key Takeaways
- Purchase loans: Lower rates (7.0-7.5%), higher LTV (75-80%), simpler underwriting
- Cash-out refinances: Higher rates (7.25-8.0%), lower LTV (70-75%), but access tax-free equity
- Cash-out reduces DSCR: Higher loan amount increases debt service, potentially dropping DSCR below 1.25
- Purchase grows portfolio faster: Acquire new cash-flowing assets vs. extracting equity from existing properties
- Hybrid strategy: Cash-out refinance existing properties to fund purchases, optimizing overall portfolio DSCR
FAQ
Q: Which scenario has better pricing? A: Purchase loans often price 0.125–0.25% lower than cash-out due to lower LTV risk. Cash-out trades equity for liquidity at a rate premium.
Q: Can I cash out immediately after purchase? A: Most lenders require 6–12 months seasoning. Delayed financing exceptions exist but require documentation of investment intent at purchase.
Q: How does each affect DSCR requirements? A: Purchase DSCR is based on acquisition NOI. Cash-out uses current NOI, which may be higher if you’ve improved the property.
Next Step
Use the DSCR Calculator to model both scenarios and compare your coverage ratio and total cost of capital.