The Quick Read: On a DSCR cash-out refinance, most programs we place files with count either the signed lease rent or the appraiser’s 1007 market rent, and many use the lower of the two. The lease is your evidence of what the property earns today, while the 1007 is an independent opinion of what it should earn.
- Many programs take the lower of the lease and the 1007, so extra lease rent above market often adds nothing.
- Some programs use the lease alone, and some use market rent alone. Ask which one applies before you order anything.
- A cash-out raises the loan, so the same two rents can pass a purchase and fall short on the refinance.
- Cash-out refinances typically top out around 75% LTV on a standard rental, with about 6 months of reserves.
- Clearing the coverage floor is not the same as positive cash flow.
The Honest Answer: Who Each Option Is For
Neither rent is the better number. The program decides which one counts, and your job is to know which rule you are walking into.
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Lease rent works for you when the lease sits at or below market. The lease is documented, so it is the cleaner story. Market rent works for you when the property is vacant, when the lease is old or informal, or when the tenant pays well below what the neighborhood supports and the program allows the appraiser’s figure.
Think of the lease as proof and the 1007 as the cap. Where a program takes the lower of the two, the lease proves the income and the 1007 limits how far it can go.
Side-by-Side
The table below shows published industry norms for each rent basis. Programs differ, and every file is reviewed individually, subject to lender guidelines.
| Factor | Lease Rent | 1007 Market Rent |
|---|---|---|
| What it is | Rent the tenant actually pays | Appraiser’s opinion from comparable rentals |
| Review basis | Signed lease plus proof of payment | Appraiser’s rent schedule |
| Documentation | Executed lease, payment history | Appraisal with Form 1007 (1 unit) or Form 1025 (2-4 units) |
| Best fit | Stable tenant at or near market | Vacant, month-to-month, or below-market lease |
| Property types | Any leased rental | Single-family (1007), 2-4 units (1025) |
| Entity vesting | LLC vesting possible, per program terms | Same; rent basis is a property decision |
| Reserves | Commonly around 6 months of PITIA | Same; set by lender, leverage, and loan size |
| Timeline | Depends on lease paperwork | Depends on appraisal scheduling |
PITIA is principal, interest, taxes, insurance, and any HOA dues. DSCR is the rent used for lender review divided by that total. A ratio of 1.00 means rent equals the payment.
What the 1007 Actually Is
Form 1007 is the Single-Family Comparable Rent Schedule. The appraiser attaches it to the appraisal for a single-family investment property, and the same form carries both a Freddie Mac and a Fannie Mae number. For two to four units, appraisers use Form 1025. McKissock notes that Form 1025 covers duplexes, triplexes, and fourplexes.
DSCR loans are not agency products. The agencies’ own rules, such as when Fannie Mae requires the form for conventional loans, do not govern them. DSCR programs borrow the form because it is a standard way to get a market-rent opinion.
The appraiser picks comparable rentals, adjusts them for meaningful differences, and reconciles to one monthly figure. The form’s instructions say adjustments should be made only for items of significant difference between the comparables and the subject. You cannot set this number. You can hand the appraiser accurate lease facts and point out comparables that were missed.
Why a Cash-Out Changes the Math
A cash-out refinance sets a new, larger loan. A larger loan means a larger PITIA, so the coverage ratio is tested again against the new obligation.
That is the part most owners miss. A property can clear the floor on the old payment and thin out on the new one. Most files in our network land at a 75% LTV ceiling on a cash-out, and equity available depends on rent used for lender review, PITIA, reserves, and that ceiling. It is not a guaranteed cash figure.
Run it in ratios. Say a property shows 1.25x coverage on the lease and the 1007 matches the lease. Pull cash out and the payment rises, so coverage might land near 1.05x. Still workable on programs that start at 1.00. Now say the 1007 comes in lower than the lease. Under a lower-of rule, the ratio uses the lower figure, and the cash-out lands near 0.95x. These are modeled assumptions, not market data.
At that point you have choices. Take less cash, renew the lease at market, or explore sub-1.00 options. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. That is a different path from the 1.00 programs, not a lower floor on the same one.
When Lease Rent Is the Better Fit
Lease rent carries the file when it is the figure the program counts and the lease is clean. These are the usual situations:
- The lease is at or just below market. The lease and the 1007 land close together, so nothing is lost either way.
- The program is lease-based. Some programs count the signed lease, supported by proof the rent is actually paid.
- The 1007 is thin on comparables. A documented, paid-on-time lease is strong evidence when the comp set is weak.
- You can renew before applying. A new lease at market, in place before the appraiser visits, lines up both numbers.
If the lease runs above market, be careful. Under a lower-of program the excess rent counts for nothing. Plan the loan on the market number and treat anything above it as a bonus you cannot spend.
When 1007 Market Rent Is the Better Fit
Market rent carries the file when the lease cannot, or when the lease is the weaker number.
- The property is vacant. Market rent stands alone, since there is no lease to count. How vacancy is handled does vary by program, so confirm it.
- The tenant is month-to-month or the lease has expired. Programs usually lean on market rent, with the prior lease and payment history as support.
- The lease is below market. Family rent, a legacy tenant, or an old renewal can drag coverage down. Where the program allows market rent, the 1007 gives you the better ratio.
- The property is a 2-4 unit building. The 1025 gives per-unit market rents, so mixed leases get a fair read. The appraiser may also add an operating income statement, and it can accompany single-family reports on leased properties.
Treat the 1007 as an opinion, not a fact. It is built from comparables, and it can come in lower than you expected.
Short-Term Rentals Do Not Run Through the 1007
The 1007 documents monthly rent. McKissock says it covers monthly rent on single-family homes, not nightly rent or business income, and appraisers cannot multiply nightly income by 30 to produce a monthly figure. Fannie Mae’s own appraiser guidance is silent on whether a short-term rental counts as rental income.
So hosting income has its own documentation path. On short-term rental collateral, a cash-out tops out around 70% LTV, and programs generally want about 12 months of hosting history and a 640+ score. For the full documentation comparison, see Lendmire’s piece Short-Term Rental Cash-Out Refinance: The 12-Month Rental History vs the Market Data Report.
Fixing a Gap Between the Lease and the 1007
When the two rents disagree, work the problem in this order:
1. Ask the program’s rent basis first. Lease only, market only, or lower of. Do this before paying for an appraisal.
2. Renew at market before you apply. A fresh lease signed before the appraiser visits can close a below-market gap. Respect local tenant rules and notice periods.
3. Document the rent. Have the executed lease and proof of payment ready.
4. Give the appraiser accurate facts. Share the lease terms and any comparable rentals that were overlooked, in a measured way.
5. Size the cash-out to the lower number. If coverage is thin, take less cash. A smaller loan means a smaller PITIA and a better ratio.
For a closer look at how a below-market lease plays out, read Lendmire’s piece DSCR Cash-Out Rent Requirements for a Below-Market Lease.
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.
Questions to Ask a Lender Before You Order the Appraisal
- Does this program use the lease, the 1007, or the lower of the two?
- What happens to my coverage ratio if market rent comes in lower than the lease?
- How is a month-to-month or expired lease treated?
- Are 2-4 unit properties tested per unit or on the building as a whole?
- Is my quote built on an assumed rent, and could it change after the appraisal?
The same house can show different coverage across lenders purely because of rent basis. Confirm it before comparing quotes. Our complete DSCR loans guide covers the wider program picture.
Common Mistakes
- Assuming a high lease helps. Under lower-of programs, it does not.
- Modeling on asking rent. Asking rent is not evidence. The appraiser’s comparables are.
- Treating the 1007 as guaranteed. It is an opinion and it can move.
- Ignoring the new payment. Coverage is retested on the larger cash-out loan.
- Confusing coverage with profit. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside the calculation, so clearing 1.00 does not mean positive cash flow.
- Running Airbnb income through the 1007. The form measures monthly rent only.
A Balanced Verdict
If your lease is at or below market and well documented, lease rent is usually your cleanest path. If the property is vacant, month-to-month, or underpriced against the neighborhood, market rent from the 1007 is often the better foundation. If your lease sits above market, expect the lower number to control on many programs and plan accordingly.
Credit and leverage also matter. Most programs want around 660, a 620 floor exists in parts of the network, and 700+ opens the strongest leverage. Reserves are commonly around 6 months of PITIA, and they vary by lender, leverage, and loan size. Everything here is subject to lender guidelines, and tax treatment varies, so consult a qualified professional.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire, a broker working with select lenders in its wholesale network across 41 markets including Washington, D.C., can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals.
Frequently Asked Questions
Does a DSCR cash-out use my lease or the appraiser’s rent?
It depends on the program. Many use the lower of the signed lease and the 1007 or 1025 market rent. Some use only the lease, and some use only market rent. Ask before you order the appraisal.
What if my lease is higher than the 1007?
Under a lower-of program, the market figure caps the rent, so the extra adds nothing. You can plan the loan on the market number, request a measured review of the comparables, or renew a tenant at market rates where the law allows.
What happens if the property is vacant?
Market rent typically stands alone, since there is no lease to count. Vacancy also affects reserves and how the file reads overall.
Can I use short-term rental income on a 1007?
No. The form records monthly rent, not nightly pricing, and appraisers cannot multiply a nightly rate by 30. Short-term rentals follow separate documentation and leverage rules, with a cash-out typically around 70% LTV.
Does clearing 1.00 mean my rental cash-flows?
No. The ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex are outside it, so a property can clear the floor and still run thin in real life.
For the mechanics of pulling equity out of a rental property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
1. Freddie Mac Form 1000 / Fannie Mae Form 1007
2. McKissock, Form 1007 & STR appraisals
3. Fannie Mae Appraiser Update June 2024
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Home Equity Line of Credit Bank on Investment Property · Mortgage Fully Paid Off HELOC to Invest · Give Home Equity Loan on Investment Property in LLC
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.