Many San Jose investors finance an ADU, a renovation or a quick purchase with short-term money and plan to fix the debt later. A rate-and-term DSCR refinance is that fix: it pays off the short-term loan and replaces it with a 30-year payment sized to the property's rent.
In short: LendingStreet refinances San Jose rentals of 1 to 8 units out of hard money, bridge, construction or existing loans into long-term DSCR loans, up to 80% LTV on some rate-and-term programs. The loan qualifies on the property's rent with a 1.0x standard minimum DSCR, a 620 minimum credit score and no W-2s or tax returns. In San Jose, the new rent from a finished ADU is often what makes the refinance qualify.
The most common case in San Jose is an investor who added a permitted ADU or completed a renovation with a hard money, fix and flip or construction loan, leased the property and now needs to retire the short-term debt. Others bought with a bridge loan, often to win a competitive offer, and have finished lease-up. Some hold an adjustable-rate or private loan with a reset or balloon date coming.
In a rate-and-term refinance, the new loan pays off existing debt and closing costs with little or no cash to the borrower. Some programs allow up to 80% LTV, higher than the 75% cash-out limit.
This example is illustrative and not a quote. An investor bought a Berryessa home for $1,150,000, then built a detached ADU using a short-term loan. The combined balance is now $740,000 and the property appraises at $1,500,000. The house leases for $4,200 and the ADU for $2,500. Taxes, including a supplemental assessment for the new ADU, plus insurance run about $1,660 a month.
The short-term loan costs about $6,783 a month interest-only. A rate-and-term DSCR refinance of the same balance, about 49% of value, carries an estimated principal and interest payment of $4,923 and a ratio of about 1.02x, assuming the program counts the ADU rent. Without the ADU, the house rent alone would not come close.
| Item | Current short-term loan | DSCR rate-and-term refinance |
|---|---|---|
| Balance | $740,000 | $740,000 |
| Structure | Interest-only, maturing | 30-year, amortizing |
| Principal and interest (estimated) | $6,783 | $4,923 |
| Taxes (including ADU supplemental) and insurance | $1,660 | $1,660 |
| Total monthly payment | $8,443 | $6,583 |
| Rent: house plus ADU | $6,700 | $6,700 |
| DSCR | 0.79x | 1.02x |
Whether ADU rent counts depends on the program and the appraisal. Give yourself the best chance by having the ADU fully permitted and finaled by the City of San Jose, with its own signed lease and, ideally, a separate address and utility meters. The appraiser will look at comparable properties with ADUs to support both value and rent.
A garage converted without permits, or an ADU still waiting on final inspection, is a common reason a San Jose refinance stalls. Close out the permit before you order the appraisal.
A refinance does not trigger Prop 13 reassessment, but the county adds the value of new construction, such as an ADU or addition, to your assessed value. That shows up as a supplemental bill and a higher regular bill going forward. Use the updated figure in your numbers; the refinance underwriting will.
Investors who bought with a bridge loan follow the same steps once units are leased. In San Jose, a bridge balance at 70% to 80% of value often will not fully convert into a DSCR loan, so plan for a paydown or a sub-1.0 DSCR program before you buy. Our bridge-to-DSCR guide explains how.
In practice, San Jose investors who plan for this often keep the proceeds from another sale or their own reserves earmarked for the paydown, so the refinance is a scheduled step rather than a scramble at maturity. That planning also gives you negotiating room if the appraisal comes in lower than expected.
If your building has three or more units built before late 1979, San Jose's Apartment Rent Ordinance limits increases on leased units, and the rent you set at lease-up becomes the base. ADUs and single-family homes are generally outside that ordinance, though state rules may apply. We qualify on signed leases, so price them at market with good comparables.
Start 60 to 90 days before your short-term loan matures. Appraisals with ADU comparables can take extra time. If maturity is close, ask your current lender in writing about an extension before you begin.
Have the payoff statement, leases, permit sign-offs, insurance policy and latest tax bill ready.
Not every refinance follows a project. Some San Jose investors financed a purchase years ago with an adjustable-rate loan or a private note that now faces a reset or balloon date. A rate-and-term DSCR refinance replaces it with a fixed, amortizing 30-year payment qualified on today's rent, without the need to document personal income.
Because the property has usually been held for some time, rents may have grown since purchase, which helps the ratio. Your tax bill also stays tied to the assessed value set when you bought, since a refinance does not reassess under Prop 13.
If you hold five or more rentals with loans maturing around the same time, a blanket portfolio loan can refinance them together with one closing and one payment, qualified on the portfolio's combined cash flow.
Send the address, payoff and maturity date, leases and your estimate of value through the form below, or call (877) 298-1001. We will show the payment and ratio before you order the appraisal. See our California rate-and-term page for statewide terms.
A refinance that pays off existing debt and closing costs with a long-term DSCR loan, without meaningful cash out. It qualifies on rent.
Yes, once the ADU is finished, permitted and leased. Whether its rent counts depends on the program and appraisal.
Up to 80% LTV on some rate-and-term programs, subject to the DSCR test. Larger balances may have lower limits; it varies by program.
Usually. The county adds new construction to your assessed value. The refinance itself does not reassess.
Yes, though San Jose bridge balances often need a paydown or a sub-1.0 program to fit.
Plan for several weeks, and start 60 to 90 days before maturity.
Yes. LLC borrowers are standard, and you sign for the loan personally.
Then the ratio uses the main house rent alone, which in San Jose usually means a much smaller loan or a sub-1.0 program. Ask us to check the program before you build.
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