Renovating an Old Colorado City cottage or a Westside bungalow with short-term money makes sense. Keeping that money on the property after it is leased does not. A rate-and-term refinance replaces it with a payment you can hold for years.
In short: LendingStreet's DSCR rate-and-term refinance pays off hard money, a bridge loan or an existing mortgage on a Colorado Springs 1-8 unit rental and replaces it with a long-term loan that qualifies on the property's rent. Rate-and-term goes up to 80% LTV on some programs, 30-year terms are available, the minimum credit score is 620 and LLC borrowers are standard. The aim is a lower or steadier payment and no maturity date looming.
Most rate-and-term refinances here fall into a few patterns.
The Westside, Old Colorado City and the older north end attract many renovation investors because their early-1900s homes respond well to updates and rent quickly once finished. Those same homes can hide old wiring, galvanized plumbing and foundation movement, so short-term loans often run longer than planned. A rate-and-term refinance is the step that ends the clock.
Other owners simply want out of a loan that does not fit anymore, such as a short-term private loan used to buy quickly or an older loan with a balloon payment approaching.
This example is illustrative and not a quote. An investor bought a 1910s Westside bungalow, renovated it with hard money and leased it for $3,000 a month. The payoff is $372,000, with estimated interest-only payments of about $3,410 a month.
The home appraises at $495,000, so the payoff is about 75% of value, within the 80% rate-and-term limit on some programs. A 30-year DSCR loan for the payoff amount has estimated principal and interest of about $2,563. With taxes of about $169 and insurance of $210, the payment is about $2,942 and DSCR is about 1.02x, above the 1.0x standard minimum.
The new loan changes the structure, not just the amount.
| Item | Hard money or bridge | DSCR rate-and-term |
|---|---|---|
| Payment | Interest-only | Principal and interest over 30 years |
| Estimated monthly debt payment | $3,410 | $2,563 |
| Term | Months | Up to 30 years |
| Basis for approval | Project and asset | Property rent, 1.0x standard minimum |
A rate-and-term refinance pays off existing debt and closing costs without significant cash to you, so some programs allow up to 80% LTV and seasoning is usually simpler. A cash-out refinance goes up to 75% LTV and has seasoning rules that vary by program. Many Springs investors do rate-and-term right after a rehab, then return for cash later.
Remember that a rate-and-term refinance can usually include closing costs and pay off the existing liens, but not significant cash to you. If you spent your own money on the renovation and want it back, compare a cash-out refinance once seasoning allows.
Make sure renovation permits with the Pikes Peak Regional Building Department are finaled. Appraisers and underwriters often ask about new roofs, finished basements, added bedrooms and electrical work. A finished basement bedroom without proper egress may not count as a bedroom, which can lower the appraised value and the market rent.
Swap the vacant-renovation insurance policy for a landlord policy before closing, and confirm the hail deductible. If the home is in a historic overlay in the north end, keep records of any exterior approvals.
Expansive soils also matter on refinance appraisals. If the house showed foundation movement during the rehab, keep the engineer's letter and repair documentation. Appraisers and underwriters may ask whether a structural issue was addressed.
Radon mitigation, a new roof after hail, and updated electrical are all worth documenting with invoices and permits; they support both the value and the rent.
Start 45 to 60 days before your short-term loan matures. You will need the finished property, a signed lease, permit sign-offs and current insurance. If your loan has an extension option, know the cost so you can compare it with closing a slightly smaller refinance now.
If the property comes in just under 1.0x, options include a sub-1.0 DSCR program, a small paydown, or waiting for a lease renewal at market. Military-area rentals often renew in summer, so timing the refinance around a renewal can help.
Another option for a tight ratio is a longer interest-only period on some programs, which lowers the early payment. Ask us to compare it with a fully amortizing loan.
If a summer PCS move left the home vacant, wait until the new lease is signed before you apply. A signed lease at market rent is the strongest support for the ratio, and appraisers in this market see military turnover often.
Some Colorado Springs owners move a former home that is now rented into an LLC when they refinance. A rate-and-term DSCR loan can pay off the original mortgage and close in the LLC's name, qualifying on the rent. Talk to your attorney and tax advisor about the transfer itself.
If the home is in an HOA, check whether the association has rental registration or leasing rules, and make sure the tenant's lease complies. Underwriters may ask for the HOA's documents.
Owners who want equity out at the same time should compare this with a cash-out refinance, which goes up to 75% LTV.
Our investor loans are business-purpose loans on non-owner-occupied property. Send your payoff letter, lease, estimated value and maturity date through the form below or call (877) 298-1001.
It pays off your current loan and closing costs without significant cash out, usually to get a longer term, a steadier payment or better terms.
Up to 80% LTV on some programs. Larger balances and 5-8 unit buildings may have lower limits.
Yes, once the property is finished and leased. Rate-and-term usually has less seasoning friction than cash-out.
Only if they meet code, including egress. Unpermitted or non-conforming bedrooms may not count toward value or rent.
Yes. LLC borrowers are standard on DSCR loans. Talk to your attorney about the transfer itself.
The standard minimum is 1.0x. Sub-1.0 programs exist for properties slightly under.
No. Our investor loans are business-purpose loans on non-owner-occupied property, so the home must be rented to a tenant, not lived in by you.
Yes, ideally. Open permits can delay the appraisal and underwriting, especially on roofs, electrical and finished basements.
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