The Quick Read: Bringing the signed rent up toward the appraiser’s market rent before you apply is the fix, because most DSCR programs count the lower of the signed lease and the market rent, and the new figure must sit on an executed document the lender can see. On a large balance, every rent dollar is tested against a bigger monthly obligation. A modest gap can therefore shrink the loan more than you would expect.
- Most programs count the lower of the lease rent and the appraiser’s market rent, unit by unit.
- A lease above market earns no extra credit. A lease below market pulls coverage down.
- A fixed-term tenant generally cannot be raised mid-lease without agreeing to it.
- The reset has to be signed, and it works best when it is done before the appraisal is ordered.
- Some states cap how much rent can rise in one step, so a big gap may take more than one step.
Key Terms Defined
Reset: Raising the rent in a signed lease or amendment so it matches what the market supports.
In-place rent: The rent your tenant actually pays under the current lease.
Market rent: The appraiser’s opinion of what the unit would rent for today, based on comparable rentals.
Lower-of rule: The common program convention that counts the lesser of in-place rent and market rent.
DSCR (debt service coverage ratio): Monthly rent divided by the full monthly obligation: principal, interest, taxes, insurance and any association dues.
Super jumbo: A loan above the $3,000,000 ceiling of Lendmire’s standard DSCR program, arranged through select wholesale programs that reach $10,000,000.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
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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.
Why Does the Rent Figure Matter So Much on a Super Jumbo File?
Because the loan is sized on the property’s rent, a low lease shrinks the loan before anything else does. 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. No federal rule says which rent counts. It is a program convention, and the lower-of rule is the one you will meet most often across the wholesale network.
Taxes and insurance do not shrink when your rent does. A rent shortfall therefore hits loan size harder than its percentage suggests. At super jumbo balances the monthly obligation is large, so coverage is tested against a big number. A lease sitting 20% under market can be the difference between full leverage and a reduced loan, or between a clean file and a thin one.
Here is the leverage ladder on a DSCR of 1.00 or higher, always subject to underwriting. On a purchase or rate-and-term refinance of an investment property, 80% is the ceiling up to $1,000,000. From there, 75% applies up to $3,000,000. Above that the ceiling drops to 65% up to $4,000,000, then 60% to $6,000,000 on review. On a cash-out refinance of a standard rental, 75% is the ceiling up to $1,000,000. It steps down to 60% between $1,500,000 and $3,000,000, and there is no cash-out above $3,000,000. Above $4,000,000 every request is reviewed case by case, purchase or rate-and-term only.
Credit has a 660 floor, rising to 700 above $3,000,000. Six months of reserves on the subject property are typical. Two appraisals are required above $2,000,000, which matters here, because it can mean two market-rent opinions to reconcile. Coverage below 1.00 is a real path through select lenders in the network, but LTV and terms adjust, subject to underwriting. Fixing the rent first is usually cleaner than leaning on that path. Lendmire’s complete DSCR loans guide walks through how those pieces fit together.
How Do You Diagnose the Gap?
Start by comparing the in-place rent for each unit against a market-rent estimate. The estimate that counts is the appraiser’s, not an asking-price screenshot. On a single-family rental, the appraiser reports monthly market rent on Form 1007. Fannie Mae’s appraiser guidance describes it as the place where market rent is estimated for single-family investment properties, and condos can use it too. The form itself works from comparable rentals, adjusts only for significant differences, and ends with a reconciled market-rent figure. Small buildings of two to four units use a different form, Form 1025.
The form borrows its name from the agency world. Your loan is not an agency loan, and the agencies’ rules do not govern it. The rent opinion is simply the standard format appraisers use.
Next, match your lease situation to what the lender counts:
| Lease situation | Rent usually counted | Does a reset help? |
|---|---|---|
| Fixed term, below market | Lower of lease or market | Yes, at renewal |
| Month-to-month, below market | Lower of lease or market | Yes, with notice |
| Expired, rent still accepted | Often treated as month-to-month | Yes, with notice |
| Lease above market | Market rent | No extra credit |
| Vacant or just turned | Market rent alone | Re-tenant at market |
| Regulated or stabilized unit | Often the legal registered rent | Usually no |
The test is generally applied unit by unit, not to the total rent roll. In a fourplex, one unit stuck at an old rent drags the whole building’s coverage down. Programs vary on details, so treat the table as the common pattern, not a promise.
Reset, Phase, or Borrow Less?
You have three real options, and the right one depends on the size of the gap, the tenant and the calendar. Resetting fully at renewal is cleanest for the file. Phasing protects the tenant relationship but may leave the counted rent short on the day you apply. Borrowing less avoids the conversation but caps your proceeds.
| Option | Best when | Main risk |
|---|---|---|
| Full reset | Gap is small or tenant is flexible | Tenant may leave |
| Phased reset | Gap is large or the cap is tight | Rent still short at application |
| Borrow less | Reset is blocked or not worth it | Lower loan or proceeds |
Investors disagree on how big a single jump should be. One BiggerPockets thread suggests that an increase beyond roughly 10% may be better handled by re-tenanting at market. Another thread describes landlords who keep good tenants about 5% under market. These are investor opinions, not rules. The honest tradeoff is that a below-market tenant who pays on time is worth something. Still, every dollar under market comes straight out of your coverage ratio at application.
The phasing trap deserves a plain warning. A two-step plan that closes the gap over two renewals can look sensible. If your refinance lands between the steps, the lender counts the lower rent anyway. Work backward from the date you want to apply, not forward from the date that suits the lease.
How Do You Reset the Lease, Step by Step?
Check the lease status first, because it decides what you are allowed to do. A fixed-term lease generally locks the rent until renewal, and the National Fair Housing Alliance’s landlord resource notes a landlord cannot raise rent mid-term unless the tenant agrees. Month-to-month tenancies are different. Nolo explains that the notice for a rent increase generally mirrors the notice needed to end the tenancy, and that state and local rent-control laws may differ.
Then follow this sequence:
1. Build the market-rent evidence. Pull comparable rentals that are similar in size, condition and location. Actual leased comps carry more weight than asking-price listings.
2. Check notice and cap limits. Notice periods vary widely by state. According to tenantrightsinfo.com, they range from 7 to 180 days, and Oregon and Washington can require 90 days.
3. Time it before the appraisal order. The appraiser’s rent opinion is where the lender’s market figure comes from. A reset finished before then gives you a stronger file.
4. Have the conversation. Explain that the current rent is below comparable rentals and set a response date. Offer a fixed-term renewal, since a tenant locked into a term cannot leave on short notice.
5. Sign a written lease or amendment. It should show the new rent, the effective date and both signatures. Verbal agreements and unsigned notices make weak support.
6. Collect payment history at the new rent. Proof that the tenant is actually paying the higher figure strengthens the file. The lender decides what it will accept.
7. Hand the packet to your loan officer. Include the executed document, the comps and the payment record.
Some investors use a short step-up. A BiggerPockets post describes a six-month lease at roughly a 5% increase as one landlord’s plan. That can work for a retention-minded owner. Just remember that the counted rent is whatever the signed lease says on the day of application.
What Does the Math Look Like Before and After?
Take a modeled investment property whose market rent supports coverage of about 1.19x, and then change only the lease. These ratios are illustrative assumptions, not market data.
- Old lease, 20% under market: coverage lands near 0.95x.
- Phased reset, 10% under market: coverage lands near 1.07x.
- Full reset to market: coverage lands near 1.19x.
The payment in all three cases is identical. Only the counted rent moved. In the first case, coverage falls just below 1.00, which is the point where full leverage typically stops being available. The lender may then review a reduced-leverage structure, or you may be asked to reset first. Qualification is always subject to lender guidelines, credit approval and property review.
A rent set above comparable leases does not help. If you push the lease past what comps support, the appraisal caps it at market. A lease with a related party also draws closer scrutiny. Keep the new rent defensible.
On loan sizes above $2,000,000, the extra appraisal means two opinions of rent. If they differ, expect the file to be reconciled, so a rent that sits well inside the comp range is safer than one at the top. If interest-only is part of your plan, Lendmire’s piece Is Interest-Only Smart on a Super Jumbo Loan Before the Reset? covers how coverage is qualified on that structure.
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.
Where Does the Simple Rule Break?
Rent caps are the biggest exception to just raising it. Most states set no dollar cap, but several do. TurboTenant describes California’s formula as 5% plus regional inflation or 10%, whichever is lower. It reports Oregon’s cap at 9.5% for most covered rentals. Tenantrightsinfo.com lists Washington’s maximum at 9.683% and the District of Columbia’s at 4.1%. Caps apply per increase, so a very large gap may take two or more annual steps. The lower-of rule keeps counting the lease in the meantime.
Other edge cases come up often:
- Rent-stabilized or regulated units. These are often underwritten at the legal registered rent, so there may be no market rent to reset to.
- Newly purchased tenant-occupied property. An inherited lease must be honored. You can raise the rent at renewal or negotiate in the purchase contract that the seller will not re-sign the tenant at the old rent.
- Vacant or turned units. With no lease, the appraiser’s market rent stands alone. Re-tenanting at market is the cleanest reset.
- Multi-unit buildings. One low unit can hold back the building even if the others sit at market.
- Expired leases. Where rent was accepted after expiry, many states treat the tenancy as month-to-month on the old terms. The details are state-specific.
- Short-term rentals. Form 1007 is built for monthly rent, not nightly rates. Short-term rental files run on documented operating history at a discount to gross rent, so this reset does not apply.
- A tenant who says no. Your fallbacks are a turnover at market, a smaller loan or waiting for the next renewal.
When Should You Not Reset?
Some leases are better left alone. If the tenant is likely to leave and the unit would sit vacant through the application, the reset can cost more than it earns. If the lease is with a family member, a higher rent will draw questions. If the unit is regulated, there may be nothing to reset. In those cases, borrowing less or waiting is often the smarter move.
There is real tension here. Replacing a tenant costs money, and a BiggerPockets discussion points out that keeping a good tenant at a slight discount can beat turnover. Another thread argues the opposite, that sitting below market is money out of the owner’s pocket. Both are investor opinions. The refinance simply adds a deadline and a lender who will count only the lower figure.
Mistakes to Avoid
- Resetting after the appraisal is ordered. The market figure is already being set.
- Modeling on asking rents. Listing screenshots do not override the appraiser.
- Closing a large gap in one step with no plan for the tenant. A refusal can leave you with neither the rent nor the tenant.
- Relying on a verbal agreement. Without a signed document, the lender has nothing to count.
- Ignoring notice rules. An increase that breaks local law can undo the reset.
- Assuming a different formula applies at super jumbo size. The coverage formula is the same. What changes around it is the leverage ladder, the appraisals and the credit floor.
For a wider look at how below-market leases are handled on large balances, Lendmire’s article How to Qualify for a Jumbo DSCR Loan When the Lease Is Below Market Rent covers the related qualifying paths. Tax treatment varies; consult a qualified professional.
Frequently Asked Questions
Can I raise rent in the middle of a lease before refinancing?
Generally not. A fixed-term lease locks the rent until renewal unless the tenant agrees to a change. Month-to-month tenants can usually be raised with proper notice. Check your state and local rules first.
Which rent does the lender use if my lease is below market?
Most programs count the lower of the signed lease rent and the appraiser’s market rent. That means the below-market lease sets a ceiling. An appraiser’s higher figure does not rescue the ratio, and a lease above market is capped at market.
Does a super jumbo DSCR loan use a different coverage formula?
No. Coverage is still monthly rent divided by the full monthly obligation. What changes is the leverage ladder, the two appraisals required above $2,000,000, and a credit floor that rises to 700 above $3,000,000. All of it is subject to underwriting.
What if my tenant refuses the increase?
You have three paths. You can wait for the next renewal, re-tenant the unit at market, or accept a smaller loan based on the lower rent. Programs below 1.00 coverage exist through select lenders in the network, but LTV and terms adjust.
Should I phase a big increase over two renewals?
Only if the timing works. Phasing is kinder to a good tenant, but the lender counts the signed rent on the day you apply. If your refinance falls between steps, you may be counted at the lower figure.
Next Step
If you are buying or refinancing a high-balance rental property and want to see how the numbers work, Lendmire can help you compare super jumbo DSCR loan options based on the property income, the loan balance, credit profile, leverage, and investor goals. Lendmire is a broker arranging business-purpose financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Every figure above is subject to underwriting and is not a commitment to lend.
Self-employed borrowers can learn more about how income is documented for super jumbo financing on Lendmire’s self-employed mortgages page.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s tax returns, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae appraiser guidance on Form 1007
2. Comparable rent schedule form (Form 1000/1007)
3. BiggerPockets thread on large increases and re-tenanting
4. BiggerPockets thread on keeping tenants slightly under market
5. National Fair Housing Alliance landlord resource on lease renewal
6. Nolo on month-to-month notice rules
7. Tenantrightsinfo on rent increases by state
8. BiggerPockets thread on a step-up lease
9. TurboTenant on states that cap rent
10. BiggerPockets thread on raise-rent letters
11. BiggerPockets thread on raising rent for good tenants
This article is part of Lendmire’s super jumbo DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Super Jumbo DSCR Cash-Out Refinance Document Checklist for a Rental · Super Jumbo DSCR Reserve Tiers on a Purchase vs Cash-Out Refinance · How the IO Reset Differs on a Purchase vs Cash-Out Super Jumbo DSCR
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.