Can A DSCR Lender Use The Lease Instead Of The 1007 Market Rent — The Quick Read: Yes, but only one way. The lease can lower your coverage number. It can’t raise it. DSCR underwriting follows a simple rule: use the lower of two numbers. Lenders look at the appraiser’s market-rent opinion and the signed lease. They pick whichever number is smaller. That smaller number sets your rent for coverage math. A lease priced above the appraisal won’t help you. A lease priced below the appraisal usually becomes the cap instead.
That’s the short version. The longer version covers three things: how the appraisal form works, what happens when a unit sits vacant, and what you can do if the number comes in low. That’s where the real decisions happen on a live file.
DSCR Calculator
Run the numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Aug 27, 2026
Prefilled with local estimates — 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 Aug 27, 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.
Key Terms Defined
DSCR (debt-service coverage ratio): This ratio compares a property’s monthly rent to its monthly housing payment. You get it by dividing rent by PITIA.
PITIA: This is your full monthly housing payment. It adds up principal, interest, taxes, insurance, and any HOA dues.
Form 1007: This is Fannie Mae’s Single-Family Comparable Rent Schedule. It’s an appraisal exhibit. The appraiser uses it to state an opinion of monthly market rent on a one-unit rental property.
Form 1025: This is the Small Residential Income Property Appraisal Report. Appraisers use it for 2-4 unit properties. It covers both market value and rental income in one report.
Lower-of rule: Lenders cap the rent they use at whichever number is smaller — the appraiser’s market-rent figure or the actual lease.
Seasoning: This is how long you must own a property, or how long a lease must be in place, before a lender accepts certain paperwork at face value.
What Form 1007 and Form 1025 Actually Produce
These forms don’t come from the lender. The appraiser produces them, as part of the same appraisal order that sets the property’s value. For a single-unit rental, the appraiser looks at comparable rentals. The appraiser then lands on an “indicated monthly market rent,” written on Form 1007. Fannie Mae created and owns this form. Fannie Mae calls it a standardized tool. The appraiser must study comparable rentals and adjust for differences between them and the subject property. This process produces a supported rent opinion, not a guess.
For 2-4 unit properties, appraisers use Form 1025 instead. This form has a rental-comparables section that comes before the sales-comparison grid. It produces both a value conclusion and a rent conclusion in one document.
| Factor | Form 1007 (1-unit) | Form 1025 (2-4 unit) |
|---|---|---|
| Property type | Single-family rental | 2-4 unit residential |
| Produces | Market rent only | Market value + market rent |
| Typical use | Combined with lease or standalone | Combined with unit-by-unit lease data |
| Governs on DSCR files | rent used for lender review ceiling | rent used for lender review ceiling per unit |
Neither form was built just for DSCR loans. They’re agency appraisal forms. The wider non-QM world borrowed them because the appraiser panels, the comp methods, and the basic logic already existed. DSCR lenders don’t have to follow Fannie Mae’s Selling Guide. But the forms, and the lower-of approach, carried over into how these files get reviewed.
The Core Rule: Lenders Use the Lower of the Two Numbers
Across the wholesale network Lendmire places DSCR files through, most programs follow the same simple rule. Run both numbers. Use the smaller one. Say a lease sits above market rent, and the appraiser’s number lands lower. That lease basically disappears for qualifying purposes. It proves the tenant pays more. But it doesn’t move the ratio the lender can use.
Some programs allow a little flexibility. A documented lease with a strong payment history might get a second look on a marginal file. Treat this as a rare exception, not something you can count on. If your file needs the higher lease number to clear coverage, ask about program fit before you order the appraisal. Don’t wait until after.
Want the full breakdown of how appraisers pull comps and reconcile rent schedules on a DSCR file? Lendmire’s guide to the DSCR appraisal, 1007 rent schedules, and what gets ordered covers the ordering process in more depth.
Five Scenarios and Which Number Wins
The rule plays out differently depending on what’s actually happening at the property. Here’s how it breaks down in the situations that come up most.
| Scenario | Which figure governs | Why |
|---|---|---|
| Lease above market rent | Appraiser’s market rent | Lower of the two applies |
| Lease below market rent | The lease | Lease becomes the lower, binding number |
| Vacant, no lease in place | Appraiser’s market rent | Nothing to compare it against |
| New purchase, tenant not yet in place | Appraiser’s market rent | Lease doesn’t exist at closing |
| Short-term rental income | Neither form applies cleanly | 1007 isn’t built for nightly-rate math |
Vacant properties are actually the simplest case. There’s no lease to compare, so the appraiser’s opinion stands alone. Purchase deals on a vacant unit work the same way. The file qualifies off market rent. A future lease, once signed, doesn’t change the number used at closing.
How This Actually Moves the DSCR Number
To make this concrete, here’s a modeled comparison. This is illustrative math, not a real sourced figure — just to show the shape of the impact. Say a property has a signed lease. On its own, that lease would produce coverage around 1.15x. Now say the appraiser’s market-rent number comes in about 12% below that lease. The lender uses the lower number. So actual qualifying coverage lands closer to 1.01x. That’s a much thinner file than the lease alone would suggest.
Now run it the other direction. Say a lease is priced about 10% below the appraiser’s market rent. On its own, the appraisal would have cleared 1.20x. But once the lease applies as the ceiling, the file ends up qualifying closer to 1.08x. Either direction, the appraisal and the lease work against each other. The borrower doesn’t get to pick which one applies.
Here’s why this matters in practice. On select programs in the network, coverage below 1.00 is still a path. Select lenders offer it, with leverage and terms adjusted to compensate. So a file pulled below 1.00 by a low 1007 conclusion isn’t automatically dead. It may just move to a different leverage tier. That’s a program conversation, not a rejection — though it does change the deal’s structure. For the underlying mechanics of how DSCR gets calculated in the first place, Lendmire’s complete DSCR loans guide covers the full formula.
Purchase vs. Refinance: Same Rule, Different Documentation
On a purchase where a tenant already occupies the unit, the lender has a real lease to compare against the appraisal. The lower-of rule applies right away. On a purchase where the unit is vacant, or the seller hasn’t provided a lease, market rent from the 1007 or 1025 stands alone. There’s no second number to compare it to.
Refinances usually come with more history to work with. Say an investor is refinancing a rental that’s been leased for a while. That investor can typically point to trailing rent collected. Sometimes tax-return Schedule E figures back it up too. This gives the file a track record beyond a single appraisal opinion. That history matters even more when an investor refinances after raising rents — see Lendmire’s piece on refinancing after a rent increase and what it does to DSCR for how that timing plays out. Cash-out refinances on the network generally cap around 75% LTV. Lenders usually expect roughly six months of seasoning before they treat the new, higher rent as reliable.
Short-Term Rentals Break the Standard Form
Form 1007 was built around monthly leases. It doesn’t translate to nightly-rate income. Some appraisers multiply a nightly rate by 30 to fake a “monthly rent.” Fannie Mae calls this a documented error, not an acceptable shortcut. Fannie Mae has said appraisers should decline assignments that ask them to force nightly comps into the monthly form. Trade coverage has picked up on this as a live enforcement issue. HousingWire reporting notes that state appraisal boards have reinforced this position through formal guidance to appraisers and appraisal management companies. ClassValuation’s breakdown puts it plainly: the form was built only to estimate long-term monthly market rent, full stop.
A pure short-term rental has no monthly lease. So the lower-of rule doesn’t work the usual way. Programs instead lean on documented booking history. That’s commonly around 12 months of hosting history, a credit profile around 640 or higher, and separate coverage floors — 1.00 for purchases and 1.00 for refinances, evaluated on their own instead of blended together. Purchase leverage on STR files typically tops out around 75% LTV. Refinance and cash-out usually run closer to 70%. Want to know how nightly-rate income actually gets converted into an underwritable figure? Lendmire’s explainer on short-term rental appraisals and market rent, and the related piece on ADR versus monthly market rent, both walk through the mechanics.
Can You Dispute a Low 1007?
Yes, but not by pointing at rising rents in general. A successful challenge has to attack the specific comps the appraiser used. Bring supporting comparables the appraiser didn’t consider. Or flag a factual error in the property description. Either one gives an appraiser something concrete to reconsider. General market-momentum arguments — “rents are up citywide” — routinely fail. They don’t address the appraiser’s actual comp selection. If the reconsideration doesn’t move the number, you have three options. The file qualifies at the lower figure. Or it adjusts to a lower-leverage or sub-1.00 structure. Or you wait for a different property.
DSCR vs. conventional financing
Two common ways to finance an investment property in this market. 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.
The 1007 Is on Its Way Out — Here’s What That Means
Fannie Mae and Freddie Mac are retiring the current static appraisal forms, including the 1007 rent schedule. They’re moving to a single dynamic reporting structure instead. Agency-delivered loans must move to the new format by a hard date in late 2026, according to McKissock’s coverage of the UAD 3.6 timeline. DSCR lenders don’t have to follow that agency mandate directly. But they draw from the same appraiser panels. Expect the rent-schedule mechanics to migrate into the new dynamic report format over time, rather than vanish outright. The lower-of logic isn’t going anywhere. Only the paperwork shape is changing.
Common Misconceptions
“My signed lease is proof of income, so the lender has to use it.” Not automatically. The lease only helps when it’s the lower of the two numbers. Once the appraiser’s number comes in lower, an above-market lease gets set aside.
“I can just show the appraiser current listings and get the number fixed.” This rarely works. A dispute needs comp-level evidence the appraiser missed — not a general trend argument.
“Airbnb income goes on the 1007 like regular rent.” It doesn’t. The form is built around monthly leases. Nightly-rate math has no place on it.
“These forms are permanent.” They’re being phased out industry-wide in favor of a dynamic report format. The underlying rent-reconciliation logic is expected to carry forward, though.
DSCR loans are business-purpose investor loans. Lenders review them based on the property’s income, not the borrower’s personal income documents. That’s why the appraisal’s rent conclusion carries so much weight in the first place.
Frequently Asked Questions
Does a higher lease ever override a low 1007?
Not on most programs Lendmire places files through — the lower-of rule is the standard convention. A small number of lenders will consider strong lease documentation as a compensating factor on a marginal file. That’s an exception worth confirming case by case, not something to plan around.
What if the property is between tenants at closing?
With no active lease, the appraiser’s market-rent conclusion stands alone. There’s nothing to compare it against. So it becomes the qualifying figure by default.
Does a below-market lease always hurt the file?
Usually, yes. A lease priced under market rent typically becomes the ceiling the lender uses, even if the appraiser’s opinion would have supported a higher number. Renewing at a market rate before you apply can sometimes help, subject to lender guidelines.
Can a 2-4 unit property use different rules per unit?
Yes. Form 1025 produces a rent conclusion per unit. Each unit gets compared against its own lease individually, rather than netted together as one blended figure.
What happens if the appraiser’s number pushes coverage below 1.00?
The file isn’t automatically dead. Coverage below 1.00 is available through select lenders in the network, generally with adjusted leverage and terms to offset the thinner ratio. It becomes a structure conversation rather than a denial.
Are you buying or refinancing a rental property? Do you want to see how the lease-versus-appraisal math shakes out on your file? Lendmire can help compare DSCR loan options based on the property’s rental documentation, credit profile, leverage, and your goals as an investor. Reach the team at 828-256-2183 or request a pricing quote to start the conversation.
Tax treatment of rental income, and any related deductions, depends on how the property is held and reported. Investors should keep clear records and check with a qualified tax professional before relying on any specific tax outcome.
The rent-versus-appraisal tug-of-war isn’t going away, even as the appraisal forms get modernized. If anything, a dynamic reporting format built around live comp data may make the appraiser’s conclusion even harder to argue with. That’s why getting the lease and the comps aligned before you order the appraisal is the smartest move an investor can make.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349). Lendmire arranges DSCR investor loans in 40 markets, including Washington, D.C., through wholesale and investor-lending channels. Lenders evaluate DSCR loans on rental income rather than personal income, subject to lender guidelines. This fits LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Lendmire is recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
You can see Lendmire’s Top Mortgage Workplace recognition documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide – Rental Income (B3-3.1-08)
2. HousingWire – Short-Term Rentals Are Breaking the Appraisal Playbook
3. ClassValuation – Why Form 1007 Can’t Be Used for Short-Term Rentals
4. McKissock Learning – UAD 3.6 Implementation Timeline
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.
