The Quick Read: On most DSCR programs, the underwriter compares a signed lease to the appraiser’s market-rent opinion and typically uses the lower number to calculate coverage. Owning the property from another state does not change that comparison, because the rent decision turns on the lease and the appraisal, not on where the borrower lives.
- A signed lease helps most when it is at or near market, since the lower figure usually controls.
- A lease above market gets capped at the appraiser’s number on most programs.
- A vacant property runs entirely on the 1007 market-rent opinion, so the whole ratio rests on one figure.
- Out-of-state is a logistics issue (you can’t walk the property), not a different rule set.
- Clearing 1.00 coverage is not the same as positive cash flow.
The honest answer on who each option is for: the lease route fits an occupied property with a tenant paying near market and clean payment records. The 1007 route fits vacant purchases, month-to-month tenants, and files where the lease is stale or unusually high or low. On most files you don’t pick one. The underwriter reviews both and the lower figure usually wins, though some programs differ.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Side-by-Side
This table describes published industry norms. Individual programs vary, and Lendmire’s wholesale network places files under both approaches depending on the property and the lender.
| Factor | Signed lease | 1007/1025 market rent |
|---|---|---|
| What it is | Actual rent a tenant pays | Appraiser’s opinion from rental comps |
| Documentation | Executed lease, rent proof, rent roll if multi-unit | Form 1007 (one unit) or 1025 (2-4 units) |
| Property status | Occupied properties only | Occupied or vacant |
| Entity vesting | Same treatment, individual or LLC | Same treatment, individual or LLC |
| Who decides its use | The lender | The lender |
| Main risk | A lease above market gets capped | Opinion can land below your estimate |
| Reserves | Set by leverage and loan size, not by rent source | Set by leverage and loan size, not by rent source |
Entity vesting is treated the same on either route, subject to lender program eligibility. Reserves follow the loan, not the rent figure.
Key Terms Defined
Form 1007: the single-family comparable rent schedule an appraiser attaches to the appraisal. Fannie Mae’s form page describes it as the way a lender obtains market rent for a single-family investment property.
Form 1025: the two-to-four-unit equivalent. DSCR files borrow both forms because they document rent cleanly, not because agencies govern the loan.
Market rent: the appraiser’s estimate of what the property would rent for, built from comparable rentals.
PITIA: principal, interest, taxes, insurance, and any HOA dues. It is the denominator in the coverage ratio.
DSCR: the rent used for lender review divided by PITIA.
Lower-of rule: the common convention of using the lesser of lease rent and market rent.
Where the 1007 Number Comes From
The appraiser produces two outputs: a value opinion that drives loan-to-value, and a separate market-rent opinion that drives coverage. You don’t supply the rent figure and neither does the lender. The lender decides how the opinion is used against any lease.
The form itself is plain. Freddie Mac’s version of the form is built to give the appraiser a familiar format for estimating market rent, with adjustments made only for significant differences between the comparables and the subject. Practitioner guidance commonly puts the comp set at three to six rentals leased in roughly the prior six to twelve months. That range is industry practice, not something the form itself requires.
The sequence on a typical file:
1. The appraiser delivers the value opinion and the market-rent opinion.
2. If a lease exists, the underwriter compares it to the appraiser’s rent figure.
3. The lower number usually becomes the rent used for coverage.
4. Coverage is that rent divided by PITIA.
Across the wholesale network, 1.00 is where select programs start. Stronger ratios open better leverage and pricing. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Eligibility always depends on lender guidelines, credit, reserves, and property review.
When the Lease Is the Better Fit
A signed lease is the stronger evidence when the property is occupied, the tenant has paid on time, and the rent sits at or near what comps support. In that case the lease and the 1007 land close together, and the file has two documents telling the same story. Fewer disagreements means fewer questions.
The lease also matters when the 1007 is likely to read light. A longtime tenant at a legacy rent can pull coverage below the property’s earning potential, and that is the lease-controls case: the lower figure wins. That is a downside, not a benefit. Value-add buyers inheriting below-market tenants feel it most. Renewing at market before the appraisal is ordered is the cleanest fix. A renewal signed after the appraisal can leave the file with two different rent stories.
Documents by situation:
- Tenant-occupied, one unit: executed lease, rent proof, appraisal rent schedule.
- Tenant-occupied, 2-4 units: each lease, rent roll, Form 1025.
- Newly leased: the lease, deposit and first-payment records.
- Partly vacant multi-unit: leases plus market rent for the empty units.
Related-party leases get heavy scrutiny and are often treated at market, with bank-trail proof. A friendly rent to a relative will not carry the ratio.
When 1007 Market Rent Is the Better Fit
Market rent carries the file when there is no usable lease. That means vacant purchases, month-to-month tenants, and expired leases. In those cases the appraisal figure often stands alone, and the whole ratio rests on one opinion. That works. It also concentrates risk.
Programs differ here. Some want a lease or rental history before counting full market rent. Others take the appraisal figure alone. On a purchase of a vacant rental, ask which camp a program falls in before you pick the loan.
The 1007 also protects you from one mistake: counting a freshly signed above-market lease. A new lease above comps does not override the appraisal unless the appraiser’s opinion supports that number too. If your pro forma leans on a high lease, expect the file to be reset to market.
For the deeper mechanics on other transaction types, Lendmire’s piece Lease Rent vs 1007 Market Rent on a DSCR Cash-Out Refinance covers the refinance side, which this article doesn’t repeat.
Does Out-of-State Change Any of This?
No. The formula, the form, and the verification are the same. Underwriting ties to the property, not the borrower’s home state, so the rent used does not change because the investor lives elsewhere.
What changes is practice. You can’t walk the property, so rent evidence comes from the lease, payment proof, and the third-party appraiser’s comps. Three habits keep remote files clean:
- Settle the lease before the appraisal is ordered.
- Get a local property manager’s rent opinion, and pull current listings that mirror what an appraiser would use as comps.
- Model with a cushion instead of the manager’s best-case number.
A property manager’s quote and a 1007 often differ. The manager prices to lease a unit. The appraiser prices from closed comps. The lender uses the appraiser’s opinion, not the quote.
A Worked Example in Ratios
These are modeled assumptions, not market data. An investor models 1.25x coverage on a signed lease. The appraiser’s rent comes in about 12% below the lease. Coverage falls toward roughly 1.10x, because the lower figure now controls and the payment hasn’t moved.
Same property, three outcomes:
- Lease below market: the lease controls and coverage reads lower than the property’s potential.
- Lease at market: both figures agree and the ratio holds.
- Lease above market: the appraisal controls and the ratio is capped.
Leverage runs on a separate test. LTV tests the value and DSCR tests the rent, and either can cap proceeds. On a purchase, most files land at 75%-80% LTV, with select programs reaching 85% at roughly a 700+ score. A larger down payment can lift coverage by shrinking the payment. It never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests.
For a property where the lease is the weak link, Lendmire’s guide DSCR Cash-Out Rent Requirements for a Below-Market Lease walks through that exact case.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
If the 1007 Comes In Low
A low number is routine, not a failure. Work it in order:
1. Review the comps the appraiser used. Check unit type, bedroom count, condition, and lease dates.
2. Gather better in-neighborhood rentals leased in the same recent window.
3. Submit a reconsideration request through the lender with those comps and any condition adjustments.
4. If the number holds, test restructuring: lower leverage, a larger down payment, or a different term structure through select lenders.
5. If coverage still sits under 1.00, a select-lender path takes coverage below 1.00 with leverage and terms adjusted.
Appraisers don’t set qualifying income. They give an opinion, and the lender decides how it is used.
Edge Cases
Short-term rentals. Form 1007 doesn’t fit them. Fannie Mae’s appraiser update addresses STRs, and taking a nightly rate, multiplying by thirty, and calling it market rent is a mistake. STR files document income through platform statements or market-data reports. In the network, STR purchases run to 75% LTV, expect a 640+ score and about 12 months of hosting history, and carry a 1.00 coverage floor. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Two-to-four units. Form 1025 is used and blends actual and market-based figures.
Appraisal format changes. A new appraisal format may retire the standalone forms for agency-delivered loans. That doesn’t change how DSCR files document rent today.
What a Remote Investor Should Hand the Lender
- Executed lease and proof of rent payments (or confirmation the unit is vacant).
- Rent roll for multi-unit properties.
- Entity documents if vesting in an LLC, subject to program terms.
- Insurance quote and HOA information where applicable.
- Reserves documentation. Reserves commonly run around 6 months of PITIA and vary by lender, leverage, and loan size. Conservative rate-term files at modest leverage under $1,500,000 can see them waived, and larger loans typically step up to about 9 months.
DSCR is not a no-paperwork product. Standard programs fund up to $3,000,000 (smaller balances available through select lenders), with loans above $2,500,000 generally held to 30-year fixed structures. Manufactured homes, log homes, and barndominiums are not offered.
Passing the coverage test is not positive cash flow. Repairs, vacancy, management, utilities, and capex sit outside the calculation. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
The Verdict
Use the lease when it is current, at market, and backed by payment records. Lean on the 1007 when there is no lease, the lease is stale, or the tenant is month-to-month. Expect the lower of the two to control either way. On an out-of-state file, the decision costs you nothing extra. It only demands more preparation, since you can’t check the comps yourself.
For the full framework, see Lendmire’s complete DSCR loans guide. If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals.
Frequently Asked Questions
Does living in another state hurt a DSCR application?
No. Qualification is based on the property, not the borrower’s home state. The lease, the appraisal, and the rent verification work the same way for a remote investor as for a local one.
Can I supply my own market rent to the lender?
No. The appraiser produces the market-rent opinion. You can supply supporting comps in a reconsideration request, but the figure is the appraiser’s.
Will a higher lease raise my coverage ratio?
Usually not. Under the common lower-of convention, a lease above market is capped at the appraiser’s number. A few programs treat it differently, so check the specific program.
What if the property is vacant at purchase?
Market rent from the 1007 carries the whole ratio. Some programs want a lease or rental history first, and others accept the appraisal figure alone.
Does an LLC change which rent is used?
No. Lease and market rent are treated the same whether the property is vested in an individual or an LLC, subject to lender program eligibility.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire is a DSCR-focused mortgage brokerage, NMLS# 2371349, placing investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed by the lender around a property’s rental income rather than personal income documentation, which fits LLC-held rentals, self-employed investors, and portfolios scaling past conventional financed-property limits. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Form 1007 instructions
2. Freddie Mac Form 1000 / Fannie Mae Form 1007
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much You Can Borrow for an Interest-Only DSCR Loan for Out-of-State Investors? · Interest-Only DSCR Loan vs. 1099-Only Loan · How to Challenge a Low Appraisal on a DSCR Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.