Looking for a DSCR HELOC?

Yes. A DSCR HELOC is built specifically for rental properties. Instead of qualifying with tax returns or W-2s, you qualify on the property's rental income compared to its housing payment. It is available on single-family rentals, 2-4 unit properties, PUDs, townhomes, warrantable condos and even 5-8 unit small multifamily buildings.

The minimum is a 700 credit score for a first-lien DSCR HELOC and 720 for a second-lien DSCR HELOC. Larger lines need stronger credit: 720+ for lines above $1.5 million and 760+ for lines above $2 million. In Connecticut, Florida and New Jersey the 5-8 unit program requires a 720 minimum.

Lines start at $50,000 and go up to $3,000,000 in first-lien position on 1-4 unit properties, and up to $2,500,000 on 5-8 unit properties. Second-lien lines (behind your existing mortgage) go up to $500,000. Combined loan-to-value tops out at 75%, so you keep at least 25% equity in the property.

Most borrowers qualify with a DSCR of 1.00 or higher, meaning rent covers the payment. Second-lien lines require 1.10. On 1-4 unit first-lien lines, DSCRs between 0.75 and 0.99, and even below 0.75, can still qualify with lower leverage and additional reserves.

DSCR = monthly gross rent ÷ monthly housing payment. On a 1-4 unit first-lien DSCR HELOC, the payment is calculated using the interest-only payment plus taxes, insurance and HOA dues, which often produces a stronger ratio than a fully amortizing loan. On 5-8 unit properties, the payment is calculated on a fully amortizing basis. Rent is the lower of the executed lease or the appraiser's market rent.

A first-lien DSCR HELOC sits in first position. It either replaces your existing mortgage or is used on a free-and-clear property or a purchase, and it offers larger lines (up to $3M). A second-lien DSCR HELOC sits behind your current mortgage, so you keep your existing rate, with lines up to $500,000.

Yes. A first-lien DSCR HELOC can be used as purchase financing. On a purchase, the full line is drawn at closing, then as you pay the balance down during the draw period, that credit becomes available again for your next deal or renovation.

The line has a 3-year draw period with interest-only payments, inside a 30-year total term. During the draw period you can borrow, repay and borrow again up to your limit, and you only pay interest on what you have drawn. After the draw period ends, the balance converts to principal-and-interest payments over the remaining term.

Yes. On a cash-out refinance, at least 75% of the credit limit must be drawn at closing. On a purchase or rate-and-term refinance, 100% of the line is drawn at closing. After that, repaid funds can be redrawn during the draw period.

Variable. The rate is an index (such as the 10-year Treasury) plus a margin, with a lifetime rate cap and floor written into the loan. If you prefer a fixed payment, a DSCR HELOAN (fixed-rate second mortgage) may be a better fit.

No. You can pay down or pay off the line at any time without a prepayment penalty.

Yes. Properties vested in an LLC, corporation or partnership are eligible, as well as individuals and revocable living trusts. All owners of the entity provide a personal guaranty, and the entity must be domiciled in a U.S. state.

On 1-4 unit first-lien refinances, yes. Short-term rental income is documented with 24 months of bank statements, gross rents are reduced by 20% for operating costs, max loan-to-value is reduced by 5% and the line is capped at $2,000,000. Short-term rental income is not eligible on purchases, 5-8 unit properties or second-lien lines.

Not always. On 1-4 unit properties, first-time investors can qualify if they have owned their primary residence for at least one year. The 5-8 unit program requires experienced investors with at least two years of experience managing income-producing property. All borrowers must own a primary residence.

There is no hard waiting period on first-lien lines, but if the property was purchased within the last 6-12 months, the value is limited to the lower of the appraisal or your purchase price plus documented improvements. Second-lien lines require at least 6 months of ownership.

Many scenarios require no reserves, including second-lien lines. Reserves of 6 to 12 months may be required on larger lines or when the DSCR is below 1.00. Cash-out proceeds cannot be used to meet reserve requirements.

On 1-4 unit properties, the waiting period is 48 months after a foreclosure, short sale, deed-in-lieu or bankruptcy (84 months for multiple events). The 5-8 unit program requires 84 months. You also need no 30-day mortgage lates in the most recent 12 months.

Interest on funds used for your rental business is often deductible as a business expense, but it depends on how the money is used and your situation. Talk with your CPA or tax advisor before you draw.