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How to cash-out refinance a rental property

You’ll need a minimum credit score of 680, cash reserves and at least 25% equity to qualify.

A cash-out refinance for a rental property can be a great way to use your equity to invest in more real estate, pay off debt, or hammer away at much-needed improvements that could increase your property’s value. But you’ll need to meet strict requirements to qualify for cash-out refinancing — and you may need to own the property for at least six months.

6 requirements for cash-out refinancing on rental properties

Exact requirements vary by lender but you’ll generally need to meet stricter minimums to cash-out refinance an investment property than you would for a primary residence.

  1. Own the property for at least six months from the date of closing
  2. A minimum credit score of 680 or 700 — programs like Fannie Mae and Freddie Mac may accept scores of 620
  3. At least 25% equity or a maximum 75% loan-to-value ratio (LTV) for one-unit properties
  4. At least 30% equity or a maximum 70% LTV for two to four-unit properties
  5. Enough steady income to cover your new mortgage payment — this may require providing tax returns and/or bank statements
  6. Enough cash reserves on hand to cover a few months to one year’s worth of mortgage payments

How to get around the six-month rule

You generally have to wait at least six months from your closing date to cash-out refinance a rental property. But you may be able to bypass this rule and refinance within a few days if you qualify for an exemption or delayed financing.

  1. You inherited the property.
  2. You were granted the property in a divorce or separation order.
  3. You qualify for delayed financing.
Delayed financing

You must meet all of these requirements to qualify for delayed financing.

  • The value of your new loan doesn’t exceed the property’s purchase price.
  • You purchased the property as an “arms-length transaction,” meaning you’re not related to the seller nor did you have a personal relationship with them.
  • You can prove you paid for the property in cash.
  • You can prove where you got the money to pay for the property in cash — this rule is to curb money laundering.
  • If you get the cash from an unsecured loan or a HELOC on another property, you agree to pay off or pay down that loan before you use the funds for anything else.
  • If you get the cash as a gift, you agree not to repay the money using your cash-out refinance loan.

There are several reasons why you might want to consider applying for delayed financing sooner rather than later — the main one being that it can free up cash that you can use to renovate or reinvest in other properties.

When to cash-out refinance an investment property

There are a few key times when it might make sense to cash-out refinance an investment property.

  • You need to make significant repairs or improvements to the property to bring it up to code or make it more attractive to renters.
  • You’re looking to consolidate other debts or lines of credit into a single monthly payment.
  • You want to make a cash offer on another investment property.
  • Interest rates have dropped since you originally purchased the property and you want to save money on interest while also liquidating some equity.

When NOT to cash-out refinance an investment property

There are also times when a cash-out refinance on rental property may not make sense.

  • You don’t have at least 25% equity in the property.
  • You plan on selling the property soon and closing costs won’t outweigh your savings.
  • You’re close to retirement and don’t feel comfortable taking on more debt.
  • Interest rates have increased beyond what you’re already paying.
  • You’re facing financial difficulties and already struggling to make your mortgage payments.


There are three primary benefits to cash-out refinancing an investment property:

Use the equity in your investment property to free up cash for other investments

A cash-out refinance can provide you with a lump sum of cash that you can reinvest in other properties or investment opportunities — such as renovating the home so you can charge more in rent.

Get a lower interest rate

If you have a higher interest rate on your investment property, refinancing can help you lower your monthly payments and save on interest over the life of the loan.

Take advantage of tax deductions

Interest payments on investment property loans are tax-deductible if you use the money for home renovations, so a cash-out refinance could help you save on your taxes as well.


Cash-out refinancing an investment property also has these drawbacks:

You could lose your rental property

If you default on your loan, you could lose your rental property to foreclosure.

You’ll have to pay closing costs

All refinancing transactions come with costs, including appraisal fees, title insurance and loan origination fees. Cash-out refinances are no different — you’ll have to pay these costs in order to get the new loan.

You might not be eligible for a cash-out refinance

Requirements for a cash-out refinance on an investment property are much stricter than they are for a primary residence. This is because lenders know they’re taking on more risk.
Be prepared to need a higher credit score, more equity and more cash reserves than you would to refinance a primary mortgage. And know that you may have to wait six months to apply if you don’t qualify for an exemption or delayed financing.

2 alternatives to cash-out refinance

Ultimately, whether or not cash-out refinancing is a good idea depends on your individual circumstances and financial goals as a landlord. If you’re looking for other alternatives, consider:

  • HELOC. A home equity line of credit (HELOC) could be a good option if you want to pull out your investment property’s equity little by little, rather than all at once. HELOCs act much like credit cards, giving you the flexibility to make small withdrawals whenever you need to.
  • Home equity loan. Take out a second mortgage on your investment property if you don’t want to go through the hassle of a cash-out refinance. This would give you two mortgage payments each month, but it could be a good option if you qualify for lower interest rates.

Bottom line

Cash-out refinancing a rental property can give you the cash infusion you need to tackle home improvements, build out your rental property portfolio or pay off debts. But you may have to wait six months to qualify — and your finances need to be exceptional to get approved. To learn more, explore our cash-out refinancing guide.

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