The Quick Read: On a DSCR purchase, a vacant property is qualified on the appraiser’s market rent from the 1007 alone, while a leased property is typically qualified on the lower of the signed lease and that same market rent. Neither path is automatically easier, because the lender weighs the two numbers under its own guidelines. The real question is which rent figure is more likely to clear the coverage ratio on your specific deal.
- Vacant: one number (the 1007 market rent) drives the whole ratio, and no lease is needed.
- Leased: the lease is checked against the 1007, and the lower figure is typically used.
- An above-market lease does not raise coverage. A below-market lease can pull it down.
- Vacant files generally need the property to be rent-ready.
- Clearing 1.00 is not the same as positive cash flow, because DSCR compares rent to PITIA only.
The honest answer on who each option is for: vacant suits the buyer who wants a clean slate, can get a property delivered empty, or is buying below-market-rent housing and plans to reset the rent. Leased suits the buyer who wants a tenant already paying, with a lease at or near market so the ratio isn’t dragged down. The two are not rivals so much as two ways the same rent question gets answered. Lendmire’s complete DSCR loans guide covers the wider program picture.
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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
The table below shows published industry norms for each path. Individual lenders vary, and the programs that apply to a given file depend on the borrower, the property, and lender guidelines.
| Factor | Vacant on the 1007 | Leased at closing |
|---|---|---|
| Rent used | Appraiser’s market rent | Lower of lease and market rent |
| Key document | Appraisal with 1007 (1025 for 2-4 units) | Executed lease, plus rent roll if multi-unit |
| Lease required | No | Yes |
| Risk to the ratio | Rides on one comp grid | Below-market lease pulls it down |
| Above-market upside | Not applicable | None; capped at market |
| Property condition | Generally rent-ready | Occupied, usually stable |
| Entity vesting | Individual or LLC, subject to program terms | Same treatment |
| Reserves | Set by leverage and loan size | Same; not tied to lease status |
| Short-term rentals | Separate STR analysis, not the 1007 | Separate STR analysis |
Two rows deserve emphasis. Entity vesting and reserves do not change with lease status. Whether title sits in a person’s name or an LLC, the rent-source rule is the same. Reserves follow leverage and loan size: commonly around 6 months of PITIA across the network, stepping up to about 9 months above $1,500,000, with some conservative files waived. Treat those as typical ranges, not promises.
What the 1007 Actually Is
The 1007 is the Single-Family Comparable Rent Schedule. Fannie Mae’s form states that the lender uses it to obtain the market rent for a conventional single-family investment property from the appraiser. The same form circulates as Freddie Mac Form 1000 under dual numbering. DSCR loans are not agency products. The form matters here only because it is the standard tool for producing a market rent opinion.
Two details from the form shape how files behave. It says adjustments should be made only for items of significant difference between the comparables and the subject. It also asks the appraiser to comment on vacancy and the general trend of rents. So the number is built from comparable rentals, lightly adjusted, with a market-trend read attached. For a 2-4 unit property the appraiser uses the 1025 instead.
The appraisal does two jobs. Value sets loan-to-value, and if value comes in under the contract price, the loan is sized on the lower figure. Market rent sets the coverage ratio. A vacant file leans on that second job entirely.
How the Rent Gets Chosen
The lender decides, under its own guidelines. The borrower rarely picks. Across the wholesale network, the pattern is consistent enough to describe:
1. Confirm the deal fits the program. The property must be a non-owner-occupied, business-purpose investment. DSCR loans are designed for investment properties and are reviewed differently from a standard owner-occupied mortgage.
2. Order the appraisal. The appraiser completes the 1007, or the 1025 for 2-4 units.
3. Gather the documents. Vacant: the appraisal alone carries the rent. Leased: the executed lease, plus a rent roll on multi-unit.
4. Select the rent. Vacant files use market rent. Leased files use the lower of lease and market.
5. Run the ratio. Monthly rent divided by the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues.
Lease scenarios resolve like this:
| Situation | Rent typically used | Effect |
|---|---|---|
| Lease equals market | Either | Clean |
| Lease above market | Market rent | No added coverage |
| Lease below market | Lease | Ratio drops |
| Month-to-month, documented | Lower of the two | Workable with payment proof |
| Lease to a relative | Often market rent | Heavy scrutiny |
The lower-of rule is common, not universal. Lease-only, market-only, and lower-of structures all exist across lenders, which is one reason two files that look identical can be treated differently.
When Vacant on the 1007 Is the Better Fit
Vacant is the stronger choice when the lease would hurt you or when you want control over the tenant.
The existing lease is below market. Value-add buyers get caught here. A legacy lease at a low rent depresses coverage below what the property can really earn. Buying it vacant lets the 1007 reflect market rent from day one.
The seller can deliver it empty. If the contract allows, asking for vacant delivery removes the lease question entirely. That is a contract term worth raising before the offer, not after the appraisal.
The property is rent-ready. Forum commentary on BiggerPockets describes many lenders using market rent comps with no lease and no seasoning when a property is close to rent-ready. That is anecdotal, but it matches what the network sees: vacancy alone does not disqualify a file, because market rent carries the income side.
The tradeoff. The whole ratio rides on one appraiser comp grid. There is no lease to cross-check it. A low 1007 can push coverage under a program minimum, which may mean a larger down payment, a restructured loan, or a documented appraisal challenge. Some lenders also discount vacancy or reduce leverage on vacant properties, and that varies by program.
Picture an investor under contract on a single-family rental, rent-ready, with the seller willing to deliver it empty. The 1007 comes back with market rent supporting coverage near 1.25x. Now suppose it comes back about 12% lower. Coverage slides toward roughly 1.10x. Still above 1.00, but the cushion is thinner, and a program with a higher minimum might now be out of reach. That swing is the vacant path’s main exposure. (It is an illustration, not market data.)
If the property needs real work, it is not a clean vacant case. Heavy rehab usually goes through a bridge or rehab loan first, then a refinance into a DSCR loan once stabilized, a route the BiggerPockets thread also describes.
When Leased at Closing Is the Better Fit
Leased is the stronger choice when a tenant is already paying at or near market and the paperwork is clean.
A lease at or near market adds stability. The lender sees an in-place tenant and a signed document backing the rent. Coverage lands where the 1007 puts it, and the lease confirms it.
You want to avoid lease-up time. A vacant property has to find a tenant after closing. A leased one starts producing from day one.
The tenant is documented. Month-to-month and expired leases are workable when the rent is written down and backed by payment proof. The lower-of test still applies.
The tradeoff. Rent above market earns nothing extra. Rent below market costs you. And you inherit someone else’s lease terms, which is why the pre-offer questions matter.
What to collect on a leased deal:
- The executed lease and any addenda.
- A rent roll for multi-unit properties.
- Payment history for month-to-month tenants.
- Confirmation of who the tenant is. Related-party leases draw scrutiny and are often replaced with market rent.
- Appraiser access. An occupied property needs the tenant to allow entry, and a delayed inspection is a preventable gap.
Handing the appraiser the lease, the improvement list, and known comparable rentals helps the 1007 reflect reality. And ask the lender, before ordering the appraisal, whether a renewal at market rent would help a below-market lease.
A mixed building works unit by unit. In a duplex with one leased unit and one vacant unit, the leased unit uses the lower of lease and market, and the vacant unit uses market rent.
Where Files Go Wrong
Four failure modes show up repeatedly.
Running the model on the lease instead of market rent. A buyer underwrites a strong lease, the 1007 lands lower, and the ratio changes after the contract is signed. Model on market rent first.
Treating a Zillow-style comp as the 1007 rent. It is not the same thing. The appraiser’s schedule governs, and building in a cushion beats assuming asking rents will hold up.
Assuming vacant means zero income. A minority of lender content says some programs underwrite vacant units at no income on a purchase. That is not the broader pattern across the network, where market rent stands in for a lease. Lenders do differ, so confirm the treatment on your file before the contract.
Mixing up purchase and refinance. Vacant refinances behave differently from vacant purchases. This article covers purchases. For the refinance side, Lendmire’s piece Refinance vs Cash-Out Refinance Definitions and Cash Back at Closing separates the two.
Short-term rentals sit outside this entirely. The 1007 is built around monthly-lease comparables, so it is the wrong tool for nightly-rate income. STR files use a dedicated short-term-rent analysis. Typical STR terms in the network: purchase up to 75% LTV, a 640+ score, about 12 months of hosting history, and a 1.00 coverage floor. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
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.
Key Terms Defined
Form 1007: the appraiser’s single-family rent schedule that produces a market rent opinion.
Form 1025: the appraisal form used for 2-4 unit properties, covering operating income.
Market rent: what comparable properties rent for, as concluded by the appraiser.
Lower-of rule: the common practice of using the smaller of the lease rent and the market rent.
PITIA: principal, interest, taxes, insurance, and association dues, the full monthly obligation in the ratio.
Rent-ready: a property in condition to be leased without major work.
Program Parameters That Apply to Both Paths
Neither path changes the core leverage rules, which are subject to lender guidelines. On a purchase, most files land at 75%-80% LTV, and select high-leverage programs reach 85% LTV on a purchase with roughly a 700+ score. Loan sizes run up to $3,000,000 on standard programs. Above $2,500,000 the network generally holds to 30-year fixed structures.
On coverage, 1.00 is where select programs start, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. A larger down payment can lift the ratio, but it does not erase leverage caps, credit floors, reserve rules, or property eligibility. Manufactured homes, log homes, and barndominiums are not offered in these programs, vacant or leased.
One more caution. DSCR compares rent to PITIA only. Clearing 1.00 is not positive cash flow, since repairs, vacancy, management, utilities, and capex sit outside the calculation. Tax treatment varies; consult a qualified professional.
Pre-Offer Checklist
- Ask the seller whether vacant delivery is possible.
- Get the lease and compare it to likely market rent.
- Model the deal on market rent before leaning on the lease.
- Confirm the property is rent-ready.
- Ask the lender how it weighs lease versus market and whether it applies a vacancy discount.
- Line up appraiser access for an occupied property.
- Check reserves against leverage and loan size.
The Verdict
Neither option wins on its own. Vacant puts everything on the 1007 and removes lease risk. Leased adds a tenant and a document but caps you at the lower number. The deciding variable is the gap between the lease and market rent. If the lease sits at or above market, leased is clean and stable. If it sits below, vacant or a renewal at market rent usually serves the ratio better. When in doubt, model on market rent and treat the lease as a bonus, not the foundation.
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. For a related look at timing around closing, see Lendmire’s piece Cash First vs Financed at Closing on a Retiree Rental Loan.
Frequently Asked Questions
Does a vacant DSCR purchase need a lease?
No. On a vacant purchase the appraiser’s market rent from the 1007 stands in for a lease. The property generally needs to be rent-ready, and lender treatment of vacancy varies by program.
If my lease is above market, does it raise my DSCR?
No. Typical practice underwrites the lower of the lease and the appraiser’s market rent, so an above-market lease adds nothing to the ratio.
Does a below-market lease hurt me?
Yes, it can. A lease under market pulls the ratio down on paper, even if the property could earn more after renewal. Asking the lender whether a renewal at market rent helps is a practical step before the appraisal.
Does a month-to-month tenant count?
Often, yes, when the rent is written down and backed by payment proof. The lower-of test still applies, and lender guidelines govern.
Can I lease to a relative?
Related-party leases get heavy scrutiny and are often replaced by market rent, so do not count on the lease figure.
Do vacant properties get discounted?
Some lenders discount vacancy or reduce leverage, and it varies by program. Others use market rent without a haircut. Confirm before you write the offer.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
2. Freddie Mac Form 1000 / Fannie Mae Form 1007
3. BiggerPockets forum thread on DSCR loans before a property is rented
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Super Jumbo DSCR Purchase vs Cash-Out Refinance on a $3M Rental · DSCR Cashout Refinance · How to Get a DSCR Loan With Only Three Months of Rental History
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.