The Quick Read: On a BRRRR takeout, the signed lease is the right evidence when the unit is occupied and the rent matches the market. The appraiser’s 1007 market rent carries the file when the unit is vacant or the lease is out of line with comparable rentals. Many programs count the lower of the two, so a lease above market earns no extra credit. Programs differ, so ask which rent a lender will use before the lease is signed.
- A lease below market can pull the coverage ratio down under a lower-of program.
- A lease above market is real income, but it may not raise the number the lender counts.
- A vacant, rent-ready unit is qualified on the appraiser’s market rent alone, on programs that accept vacancy.
- The rent decides the coverage ratio. The appraisal value decides leverage. Both gates have to clear.
- Clearing 1.00x is not the same as positive cash flow.
Side-by-Side
The table compares the two rent figures as evidence on a rehab-to-rental refinance. Programs vary, and this is how the choice usually works across the lenders in Lendmire’s wholesale network.
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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.
| Factor | Lease Rent | 1007 Market Rent |
|---|---|---|
| What it is | Rent in the executed lease | Appraiser’s opinion from rental comps |
| Who produces it | Borrower and tenant | Appraiser, ordered by the lender |
| Best use | Occupied unit at market rent | Vacant unit, or lease out of line |
| Documentation | Lease, deposit record, rent paid | Rent schedule attached to appraisal |
| Property types | Any leased unit | 1007 for one unit; 1025 for 2-4 units |
| Entity vesting | Lease names the owner or LLC landlord | Not tied to vesting |
| Short-term rentals | Not a lease-based file | Not built for nightly rates |
| Reserves | Same either way, set by the program | Same either way, set by the program |
Entity vesting follows the program, not the rent source. A BRRRR file closing in an LLC is subject to lender program eligibility, and the lease should name the same landlord that will hold title.
What Each Number Actually Is
Lease rent is the contract figure. It is what the tenant agreed to pay, and it is proven by the signed lease, the security deposit record, and evidence the first month’s rent was paid.
The 1007 is different. Form 1007 is the Single-Family Comparable Rent Schedule, and Fannie Mae’s appraiser guidance describes it as the appraiser’s estimate of monthly market rent for a single-family investment property. Freddie Mac’s copy of the form shows the format: comparable rentals, adjustments, and a final indicated monthly market rent. The appraiser prepares it as an attachment to the appraisal.
DSCR loans are not agency products. The agencies write the form, and non-QM lenders borrow it. That matters because no federal rule says which rent a DSCR lender must prefer. The choice is lender policy.
For two to four units, the appraisal report is a different form. Fannie Mae’s Selling Guide lists the 1025 small income property report for that class, with rent on each unit. Check which form the lender will order before building the model.
How the Ratio Gets Built
DSCR is the rent used for lender review divided by PITIA: principal, interest, taxes, insurance, and any HOA dues. On a BRRRR takeout the denominator is the new, larger payment, not the bridge payment. A rehab that pushed value up also pushed the loan up. The rent has to cover that bigger obligation.
Two tests run side by side. The appraisal gives value, which sets the leverage limit. It also gives market rent, which feeds the coverage ratio. A thin rent figure can cap the loan even when value comes in strong. An investor can hit the after-repair value and still get a smaller loan.
On the lease-or-market question, three treatments exist across the network:
1. Lower of lease or market rent. The most common treatment. The weaker number controls.
2. Market rent only. The appraiser’s figure drives the ratio, and the lease is supporting evidence.
3. Lease only. Less common, and usually tied to documented rent history.
Nothing makes lower-of universal. It is the most common convention, not a rule. Ask the lender which treatment applies in writing, before the lease is signed.
When a Lease Is the Better Fit
The lease is the better evidence when three things line up: the unit is occupied, the lease reflects what comparable units rent for, and the program counts actual rent.
An occupied unit with a lease set near market makes the cleanest takeout. The lease and the 1007 tell the same story, so neither number drags the ratio down. The lender sees paid rent, a deposit, and a documented tenant. That is a file with few open questions.
The lease also helps when the appraiser’s rent opinion runs low against what the unit is actually collecting. A documented, market-supported lease gives the file a second data point. Whether that data point changes the coverage figure depends on the program. Under a lower-of program, a lease above the 1007 does not lift the figure. It still supports the file, because it shows the unit is leased.
Consider an investor whose rehab is finished and whose tenant has paid the first month. The lease is at market, the deposit is on record, and the entity on the lease matches the title entity. That file gives the underwriter little to question. Ready lease evidence is the whole advantage here.
Watch the lease term. A lease that is month-to-month or near expiration may be treated differently from a fresh one. Treatment is program-specific, and it is usually handled with written rent terms and proof of payment.
When 1007 Market Rent Is the Better Fit
Market rent is the better evidence in three situations: the unit is vacant, the lease is well below market, or the program reviews the file on the appraiser’s figure alone.
A vacant, rent-ready unit has no lease to offer. The 1007 is the only number, and the file is qualified on it. Some refinance programs accept a vacant property and others want a signed lease first. That varies by program, so ask before the rehab wraps.
A below-market lease is the more common trap. Say a family member or an early tenant signed at a low rent to fill the unit. Under a lower-of program, that lease pulls the ratio down even though comparable rentals would support more. The investor chose a fast tenant over a stronger takeout. In that case, a vacant property qualified on the 1007 can produce a better ratio than the leased one. The tradeoff is real, and it should be run both ways before the lease is signed.
The 1007 also governs when a program’s guidelines are market-rent-only. Then the lease is background, and the work is making sure the appraiser has the best possible rent support.
How the Appraiser Builds the Number
The appraiser selects comparable rentals, adjusts them for size, condition, and features, and reaches an indicated monthly rent. The number lands closer to leased comparables than to listing prices. Asking rents on a listing site are a hope. Closed leases are evidence.
Modeling should follow the same logic. Run the deal on comparable leased rentals, not on the rent in the listing that attracted the tenant. An investor who models on asking rents and then sees a lower 1007 has not been surprised by the appraiser. The model was wrong.
The 1007 asks for monthly market rent. Fannie Mae’s appraiser update states that comparables must be leased monthly, and that a nightly short-term rate multiplied by 30 is not valid support. The form is the wrong tool for short-term rental income.
Practical steps that help the appraiser: hand over the lease, a short list of recent in-neighborhood rentals, and a summary of the rehab scope. Finished kitchens, baths, and mechanical updates change which comparables fit. Appraisers cannot weigh work they were never told about.
Why Online Advice Conflicts
Pages on this topic say two different things. Some say the lender uses the lower of lease or market rent. Others say market rent replaces the lease. Both describe real programs. Which one applies is set by the lender’s program guidelines, and the unit’s occupancy only changes the inputs: a vacant unit has no lease, so market rent is the only figure in any program.
Under a lower-of program, the lease and the 1007 compete and the smaller number wins. Under a market-rent-only program, the lease never enters the ratio. The disagreement comes from lenders writing their own rules, not from errors.
A flat haircut to the 1007 figure is another claim that circulates. Treat any fixed discount applied to market rent with caution. It reflects one lender’s choice at best, and it does not describe the network as a whole.
Timing Inside the Bridge Term
The common mistake is signing the lease before knowing what the appraiser will say. A tenant placed in a hurry, at a rent set to fill the unit, can lock in a figure below what the takeout needs. By the time the 1007 arrives, the lease is already signed.
A cleaner sequence:
1. Model the takeout on comparable leased rentals before the rehab finishes, using the coverage ratio and the larger payment.
2. Ask the lender which rent the program counts and whether a vacant property is accepted.
3. Set the lease at the market level the comparables support, not below it to rush a tenant, and not above it hoping to raise the ratio.
4. Assemble lease evidence early: the signed lease, deposit record, and proof of rent received.
5. Order the appraisal with the rent schedule attached and give the appraiser the lease and comparables up front.
Rent seasoning is another timing issue. Some lenders may want a stretch of rental history before they count full market rent. That is program-specific, and it is worth asking about while the bridge loan still has runway.
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.
Which Form Applies
The right rent form depends on the property. One-unit properties use the 1007. Two to four units use the 1025 with each unit’s rent. Short-term rental files step outside both, because nightly income needs different support, and those programs are placed separately.
Short-term rental programs in the network run lower leverage than standard rentals: purchases to 75% LTV, refinances around 70%, and cash-out at 70%, with a 640 or higher score and about 12 months of hosting history. Coverage on those files runs on its own track, with a 1.00 floor on both purchases and refinances. It is a separate program, not a variation on the long-term takeout. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
One watch item: Fannie Mae’s UAD 3.6 FAQ says the legacy appraisal forms, including the 1007, are being replaced by a redesigned residential report, with market rent moving into its rental information section. That change governs agency submissions. Which format non-QM lenders ask for is lender-specific, so confirm what the appraisal will include rather than assuming the form number.
If the 1007 Comes in Low
A low rent opinion does not end the file. The options differ by how far the ratio misses.
| Situation | Option to review |
|---|---|
| Rent opinion looks off against comps | Appraisal reconsideration with recent leased comparables |
| Ratio misses by a small margin | Cash paydown at the takeout, or a smaller cash-out |
| Ratio is well under 1.00 | Select-lender path below 1.00, with leverage and terms adjusted |
| Lease is the weak number | Wait for a market-rate renewal before applying |
| Cash-out is the goal | Rate-and-term structure instead, which has a higher ceiling |
A reconsideration request works when it is documented: recent closed leases in the same area, condition notes, and rehab detail. A bare request that says the number feels low goes nowhere.
On leverage, most purchases land at 75% to 80% LTV and cash-out refinances top out around 75%. Rate-and-term refinances reach higher on select programs. Each file is reviewed individually, subject to lender guidelines.
Paying the new loan down at the takeout, or taking less cash out, can lower the payment and lift the ratio. It does not erase leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage. Many select programs start at 1.00x coverage, and a separate select-lender path accepts less than that, with leverage and terms adjusted.
Documents to Assemble
| Item | Why it matters |
|---|---|
| Executed lease | Shows the contract rent and term |
| Security deposit record | Confirms the tenant is in place |
| Proof of first rent paid | Shows rent is actually collected |
| Entity documents | Landlord on lease matches title holder |
| Rehab scope and photos | Helps the appraiser pick comparables |
| Insurance quote | Completes the payment in the ratio |
| Reserves statements | Reserves run about 6 months of PITIA on many files |
Reserves vary by lender, leverage, loan size, and transaction type. They commonly sit near 6 months of PITIA. Conservative rate-and-term files at modest leverage under $1,500,000 can see them waived. Larger loans step up to about 9 months. Credit expectations follow the same pattern: a 620 floor exists in parts of the network, most programs want around 660, and 700 or higher opens the strongest leverage tiers.
Loan sizes run up to $3,000,000 on standard programs, and above $2,500,000 the network generally holds to 30-year fixed structures. Manufactured homes, log homes, and barndominiums are not offered through these DSCR programs.
Rent Coverage Is Not Cash Flow
DSCR compares rent to PITIA and nothing else. Repairs, vacancy, management, utilities, and capital reserves sit outside the calculation. A file that clears 1.00x can still lose money each month. The ratio tests whether the lender is comfortable, not whether the investor is profitable.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. Qualification runs primarily on property-level rental income covering the payment, subject to lender guidelines.
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
Neither number wins by default. The lease is the stronger evidence when the unit is occupied at a market rent and the program counts actual rent. The 1007 market rent is the stronger evidence when the unit is vacant, the lease is out of line, or the program reviews the file on the appraiser’s figure alone.
For most BRRRR investors, the practical answer is to plan around the lower of the two. Set the lease near what comparable leased rentals support, and keep the evidence ready. Raising the lease above market earns no credit under a lower-of program, and lowering it to fill the unit can cost coverage at the takeout.
Lendmire’s complete DSCR loans guide covers the full qualification picture. For a closer look at this exact question, Lendmire’s piece Can A DSCR Lender Use The Lease Instead Of The 1007 Market Rent? goes deeper on the lender side.
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 a lease above market rent raise my DSCR?
Not under a lower-of program. The lender counts the smaller figure, so the extra rent is real income but adds nothing to the ratio. Some programs treat it differently, which is why the question belongs in a written ask before the lease is signed.
Can I refinance a BRRRR property that has no tenant yet?
Often, yes, on programs that accept a vacant property. The 1007 market rent then carries the file alone. Other programs want a signed lease first, so confirm this before the rehab finishes.
Is the 1007 required on every DSCR loan?
No. It is an agency form that the non-QM world borrows, and Fannie Mae’s Selling Guide ties it to agency loans on one-unit investment properties. DSCR programs set their own appraisal requirements, and many ask for a rent schedule as part of the appraisal.
What if my property is a duplex or fourplex?
A different report applies. Two to four units use the 1025, with rent estimated per unit. The same lease-versus-market question still comes up unit by unit.
Does passing 1.00x mean the property makes money?
No. The ratio counts rent against PITIA only. Vacancy, repairs, management, and utilities are outside it, so a passing ratio can still be a negative-cash-flow property.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
1. Fannie Mae Appraiser Update, June 2024
2. Freddie Mac Form 1000 / Fannie Mae Form 1007 Comparable Rent Schedule
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get Cash Out on a $3 Million Rental With a DSCR Loan? · No-Seasoning vs Six-Month Wait on a DSCR Cash-Out for a 2–4 Unit · DSCR HELOCs for Savannah Landlords Qualifying on Rent
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.