Refinancing commercial real estate can be a smart strategy for investors looking to lower monthly payments, tap into property equity, or transition from short-term to long-term financing. One increasingly popular tool for achieving this is the DSCR loan—a streamlined, income-based financing solution that focuses on the property’s cash flow rather than the borrower’s personal income.
This guide explains how to refinance an existing commercial mortgage using a DSCR loan, including the benefits, qualification criteria, and steps investors should follow to make the most of this refinancing option.
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A Debt Service Coverage Ratio (DSCR) loan is a type of non-QM (non-qualified mortgage) that evaluates an investment property’s ability to cover its own debt service (i.e., mortgage payments). It’s calculated using the following formula:
DSCR = Net Operating Income (NOI) / Annual Debt Payments
For example, a property generating $120,000 in NOI with annual debt obligations of $100,000 has a DSCR of 1.20. Most lenders require a DSCR of 1.20 or higher for refinance approval.
Refinancing with a DSCR loan provides several strategic advantages for real estate investors and business owners, especially those with unconventional income streams or growing portfolios.
DSCR loans are available for a wide range of income-producing commercial properties, including:
Some lenders also accommodate non-warrantable condos, leasehold interests, and properties without full tenancy, though these may come with higher DSCR or lower LTV requirements.
| Loan Feature | Typical Range |
|---|---|
| Minimum DSCR | 1.20 – 1.30 |
| Maximum Loan-to-Value (LTV) | 70% – 80% (often lower for cash-out refinances) |
| Credit Score | 660+ (700+ for best rates) |
| Loan Amount Range | $100,000 – $5,000,000+ |
| Prepayment Penalty | Common (3–5 years, step-down or flat) |
| Ownership Structure | Individual, LLC, LP, Corporation |
| Required Reserves | Typically 6–12 months of PITIA |
Pro Tip: For cash-out refinances, some lenders may impose seasoning periods—typically 6–12 months of ownership—especially if you’re refinancing after a recent acquisition or renovation.
Refinancing with a DSCR loan makes sense in several situations:
If you used short-term financing to acquire or renovate a property, a DSCR loan allows you to lock in long-term, lower-rate debt once the property is stabilized.
Refinancing from a high-interest commercial loan to a DSCR loan with interest-only options or longer amortization can significantly improve monthly cash flow.
DSCR cash-out refinances allow you to pull capital from appreciated assets and reinvest it into new deals or improvements.
Since DSCR loans don’t rely on personal income or tax documentation, they’re ideal for investors with aggressive write-offs, multiple properties, or LLC-based ownership.
Investor Profile: A self-employed investor owns a 4-unit mixed-use building with $96,000 in annual NOI. Their existing mortgage payment is $72,000/year.
This investor meets the typical lender’s criteria for DSCR refinance and could potentially extract equity if it’s a cash-out refi.
Gather documentation showing rental income, operating expenses, and lease agreements.
Make sure your property generates at least 1.20x the projected mortgage payment.
An updated appraisal will confirm the property’s market value and expected rent (especially important for vacant or recently improved properties).
Select a lender with experience in non-QM commercial loans and property types like yours.
Expect to provide:
Refinancing an existing commercial mortgage with a DSCR loan offers flexibility, faster closings, and scalability—especially for real estate investors operating outside traditional income documentation requirements. Whether you’re trying to reduce your payment, tap equity, or move into a long-term financing solution, DSCR loans are a valuable alternative.
Make sure your property is cash-flowing, your credit is solid, and your documents are in order—then shop lenders who understand investor-focused commercial lending. A smart DSCR refinance can unlock capital, reduce risk, and fuel your portfolio’s next stage of growth.
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