The Quick Read: On most DSCR purchases, the lender compares the tenant’s lease to the appraiser’s 1007 market rent and counts the lower of the two, while a vacant property runs on the 1007 alone, so the lease can cap your coverage ratio but rarely lifts it, and the exact rule depends on the program. The 1007 is the appraiser’s opinion of what the unit would rent for today. The lease is what the tenant actually pays.
- Vacant at closing: the appraiser’s market rent is the only rent figure.
- Leased above market: the extra rent usually adds nothing to your ratio.
- Leased below market: the lease usually becomes the ceiling, even if the property is worth more.
- A minority of programs use actual rent or the higher figure, so confirm the rule before you offer.
Here is the honest answer on who each option is for. Market rent is for buyers of vacant homes, buyers who plan to re-tenant, and anyone who wants to underwrite on a number they can’t talk up. The lease in place is for buyers inheriting a stable tenant, where the signed document backs up the appraiser’s number or, in some programs, replaces it. Neither is better in the abstract. The question is which one controls your file.
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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.
DSCR stands for debt service coverage ratio. The lender divides the monthly rent it counts by the full monthly housing obligation: principal, interest, taxes, insurance, and any association dues (together, PITIA). Loan-to-value (LTV) is a separate test, run on the appraised value. Value and rent are two different checks on the same appraisal. A file can pass one and fail the other.
Side-by-Side
The table shows how the two figures are commonly treated across DSCR programs. Individual programs differ, and the column contents reflect published industry norms, not one lender’s rulebook. The complete DSCR loans guide covers the wider program picture.
| Factor | 1007 Market Rent | Lease in Place |
|---|---|---|
| Who produces it | The appraiser | Landlord and tenant |
| What it shows | What the unit could rent for | What the tenant pays now |
| Role on a vacant deal | The only rent figure | Does not exist |
| Role on a leased deal | Compared with the lease | Compared with the 1007 |
| Documentation | Appraisal rent schedule | Lease, often plus payment proof |
| Property types | 1-unit (1007), 2-4 unit (1025) | Any leased unit |
| Entity vesting | Does not change the rent test | Does not change the rent test |
| Reserve expectations | Set by program and loan size | Set by program and loan size |
| Timing in the file | Arrives with the appraisal | Collected from the seller during contract |
| Main weakness | Opinion built on three comps | Can sit well above or below market |
Two rows deserve a note. Vesting and reserves don’t move with the rent choice. Rent selection is a property-level test, while entity rules and reserve requirements come from the program itself. If you plan to hold title in an LLC, that is handled per lender program requirements, not by which rent you pick. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
What the 1007 Actually Is
A rent schedule is a short appraisal form that estimates market rent. Fannie Mae’s forms page lists two relevant forms: Form 1007, the Single-Family Comparable Rent Schedule, and Form 1025, the Small Residential Income Property Appraisal Report. DSCR loans are not agency loans. Lenders simply borrow these forms because they are the standard format appraisers already use.
The blank form itself shows how it works. It lays out three comparable rentals and an indicated monthly market rent line. It also has a reconciliation step. Its instructions say to adjust only for significant differences between the comps and the subject, and to adjust rent concessions to the market rather than to the subject. BiggerPockets describes the same idea: nearby rented properties, their in-place rents, and adjustments for differences like bathroom count.
The appraiser owns that number. You can hand over accurate comps and property details. You can’t hand over an asking rent and expect it to stick.
For a 2-4 unit property, the rent analysis sits inside the Form 1025 income-property report instead of a separate attachment.
When 1007 Market Rent Is the Better Fit
Market rent is the controlling figure whenever there is no reliable lease to compare it against. That covers four situations.
The property is vacant at closing. There is no lower-of test, because there is nothing to compare. The 1007 drives the ratio alone. A vacant home is not a disadvantage in itself. The appraiser’s number carries the file.
You plan to re-tenant after closing. The seller’s tenant is leaving, or you are buying with vacant possession. The appraiser’s view of today’s market is exactly the number you need.
The existing lease looks built for the sale. Free months, identical rents across every unit, or deposits that don’t match the lease all invite scrutiny. Market rent is the cleaner basis in those files.
The lease is above market. Here the 1007 effectively caps you. A lease priced above what comps support rarely adds coverage. Most programs we place files with count the lower figure.
Market rent also keeps you honest. Underwrite your offer at the 1007 number, not the pro forma. An assumed rent can land lower once the appraisal arrives, and the ratio moves with it.
One trap: short-term rentals. Nightly rate times 30 is not a market rent, because the form is built on comparable rentals leased monthly. Short-term rental files typically use a different income method. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
When the Lease in Place Is the Better Fit
A lease is evidence of rent. It is compared with the 1007, not substituted for it. Still, there are real situations where the lease is the figure that matters most.
The lease is below market. This is the case that surprises value-add buyers. A legacy tenant paying under market usually makes the lease the cap. The property may be worth more than the lease suggests, yet the coverage ratio is built on the lower number. Renewing at market can sometimes fix it, if the tenant agrees and the new rent is documented. On a purchase, though, timing is tight.
The lease and the 1007 land close together. Then the lease does its best work: it confirms the appraiser’s number with a signed document and, in many programs, payment history. A stable tenant with a clean record makes a file easier to read.
Your program counts actual rent. A minority of programs use actual rent or the higher figure. That is uncommon and specific to the program, so treat lower-of as typical rather than universal. If a lender in the network does count actual rent, a strong lease in place is the whole point.
A small multifamily building is already leased. Some programs look at an operating income statement alongside the 1025 for leased 2-4 unit properties. Which documents apply varies by lender.
The units are rent-regulated. Some programs underwrite at the legal registered rent instead of the 1007. Again, that is a few programs, not the rule.
A month-to-month or expired lease is usually workable but weaker. Proof that the tenant actually pays matters more in that case. Lenders commonly ask for deposits or bank records, and the document list depends on the program.
Same Property, Three Tenancies
These are modeled scenarios, not market data. Picture one single-family rental where, at the appraiser’s market rent, coverage works out to roughly 1.25x on a 75% LTV purchase. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
- Vacant at closing. The 1007 alone sets the rent. Coverage stays near 1.25x.
- Leased 10% above the 1007. The lower-of comparison counts market rent. Coverage stays near 1.25x. The extra rent bought you nothing.
- Leased 15% below the 1007. The lease becomes the cap. Coverage drops to roughly 1.06x, even though the property would earn more at market.
That last line is where deals get tight. Coverage near 1.00 is where many select programs start, and a separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Neither is a promise of approval. Qualification stays subject to credit review, property review, and lender guidelines.
What can you do about a low ratio? Putting more down lowers the payment and can lift the ratio. A larger down payment never erases a leverage cap, a credit floor, a reserve rule, or a property eligibility limit. The strongest files clear both tests: enough equity and enough rental coverage.
The DSCR test also is not a cash-flow forecast. Clearing 1.00 does not mean the property pays you. Repairs, vacancy, management, utilities, and capital expenses all sit outside the calculation.
Before You Make the Offer
Brokers see the same mistake often: buyers model the lease, then meet the appraisal. A short routine prevents that.
1. Ask what the occupancy will be at closing. Vacant, tenant in place, or month-to-month changes which figure drives the file.
2. Get the lease and the payment history early. Seller-provided leases should match deposits. Mismatches draw questions.
3. Run the deal at both numbers. Calculate coverage at the lease rent and at your best read of market rent. Underwrite on the lower one.
4. Know your program’s rent rule. Ask whether it counts the lower figure, actual rent, or something else. Lendmire arranges DSCR loans through a wholesale network of select lenders, and that rule varies by program.
5. Match the form to the property. One unit gets the 1007. Two to four units get the 1025.
6. Plan for a low number. Give the appraiser accurate comparable rentals and property detail. Know your fallback: more down, a different program, or walking away.
Think of another option too. If the tenant is moving out anyway, a vacant-possession purchase may be the cleanest path, because the 1007 then carries the file with no lease to cap it.
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 rent schedule for a single-family property, built from three comparable rentals.
Form 1025: The small residential income property appraisal report used for 2-4 unit properties.
Indicated monthly market rent: The single reconciled rent figure the appraiser lands on after adjusting the comps.
Lease in place: The contractual rent the current tenant pays under a signed agreement.
Lower-of approach: A common rent-selection method where the lender counts the smaller of the lease rent and the market rent.
Estoppel: A tenant-signed statement confirming the rent and the lease terms, sometimes requested to back up a seller’s lease.
The Verdict
Treat the 1007 as the number that decides the file, and the lease as the evidence that supports or limits it. If the property is vacant, market rent is the whole story. If it is leased at or above market, the two figures converge and the lease adds comfort. If it is leased below market, the lease is the one to worry about, and you should price your offer around it.
Run both numbers before you commit. A good lease never rescues a weak appraisal, and a good appraisal won’t rescue a deal that depends on a below-market tenant.
For related reading, Lendmire has covered lease rent vs 1007 market rent for a BRRRR DSCR takeout.
Frequently Asked Questions
Does the 1007 replace the lease?
No. On a leased property, the lender compares the two. The lease is evidence of rent, and the appraiser’s schedule is the independent check. On a vacant property, the 1007 stands alone because there is no lease.
Can I use the higher number?
Sometimes, but not often. A minority of programs in the network use actual rent or the higher figure. Many use the lower figure, so confirm the rule for your program before building your offer around the higher one.
What if my property is vacant?
Vacancy is not a problem by itself. The appraiser’s market rent carries the file and sets the coverage ratio. The same leverage, credit, and reserve rules still apply, and they vary by lender and loan size.
Can a below-market lease be fixed before closing?
Possibly. A new lease at market rent, signed by the tenant and documented, can change the figure. Whether it works depends on the tenant’s agreement, the seller’s cooperation, and what the program accepts. Raise it early.
Is coverage above 1.00 the same as positive cash flow?
No. The ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses are outside the calculation. A deal can clear the ratio and still leave you thin after real operating costs.
Next Steps
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire, a mortgage broker arranging DSCR financing through select lenders across 41 markets including Washington, D.C., can help you compare loan options based on the property income, credit profile, leverage, and investor goals. Call 828-256-2183 or request a quote. Programs change, and every file is reviewed individually; this is not a commitment to lend.
Before you sign a purchase contract on a leased property, find out what the appraiser’s rent will say.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income rather than personal income, subject to lender and program guidelines, a fit for self-employed investors and LLC-owned portfolios. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. Fannie Mae Selling & Servicing Guide Forms
2. Blank Form 1007 (Fannie Mae/Freddie Mac Form 1000)
3. BiggerPockets, Real Estate Investor Financing 101: 1007 Form
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 Cash-Out vs Purchase LTV and Seasoning Rules Compared · How to Scale From 5 to 20 Rentals Using DSCR Loans · Lease Rent vs. 1007 Market Rent for a BRRRR DSCR Takeout
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.