The Quick Read: On most 2-4 unit DSCR files, the lender does not pick one source over the other; it tests each unit, counts the lower of the signed lease and the appraiser’s market rent, adds the units together, and divides by PITIA, the full monthly payment including taxes, insurance, and association dues. That lower-of method is a common program convention, not a law, so treatment varies by lender. Here is what matters most:
- A lease above market usually earns no extra credit.
- A lease below market can drag the ratio down, even when the appraiser says the unit could rent for more.
- A vacant unit typically runs on the appraiser’s number alone.
- Each unit is tested on its own, so one legacy lease can cost the whole building.
- Clearing the coverage test is not the same as positive cash flow.
The honest answer is that this is rarely a real either/or. Signed leases are the evidence for units that are occupied and priced near the market. The appraiser’s rent schedule is the evidence for vacant units, expired leases, and units where the lease looks too high. Investors with stable, at-market tenants lean on the leases. Investors buying, renovating, or re-leasing lean on the appraiser. Most buildings end up using both, unit by unit.
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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 shows how each type of evidence works under published industry norms. Each lender decides how to weigh them, and Lendmire’s wholesale network places files under both approaches.
| Factor | Signed Leases | Appraiser Rent Schedule |
|---|---|---|
| Review basis | Actual in-place rent | Appraiser’s opinion of market rent |
| Documentation | Leases, rent roll, payment proof | Appraisal with a unit-level rent schedule |
| Property types | Occupied units only | Occupied and vacant units |
| Entity vesting | Same rent test either way | Same rent test either way |
| Timeline | You assemble it before review | Depends on appraisal scheduling and comps |
| Reserve expectations | Not set by the rent source | Not set by the rent source |
| Typical role | Can lower the counted rent | Sets the ceiling; stands alone for vacancies |
| Main risk | Below-market leases pull coverage down | Comps can lag the current market |
Two rows deserve a comment. Vesting in an LLC versus your personal name does not change which rent gets counted, though LLC eligibility follows program terms. Reserves are a separate test: they run commonly around 6 months of PITIA on most files, and about 9 months on loans above $1,500,000. Reserve rules vary by lender, leverage, and transaction type, and neither rent source changes them.
Key Terms Defined
Market rent is what the appraiser concludes a unit would rent for today, based on comparable rentals.
In-place rent is what the tenant actually pays under the current lease.
Rent roll is a unit-by-unit list of tenants, lease dates, and monthly rent.
Form 1025 is the standard appraisal report for 2-4 unit income properties. It carries a rent schedule with a market rent for each unit.
Lower-of rule is the convention of counting each leased unit at the smaller of its lease rent and its market rent.
PITIA is principal, interest, taxes, insurance, and association dues. DSCR divides the counted rent by this number.
How the Appraiser Builds the Rent Number on a 2-4 Unit
On a single-family rental, the appraiser attaches a separate rent form (Form 1007). It does not apply to a duplex, triplex, or fourplex. On 2-4 units, the shared Fannie Mae and Freddie Mac appraisal form carries the rent schedule. It instructs the appraiser to reconcile indicated monthly market rents into one opinion of market rent for each unit.
The appraiser works from rental comps, which are similar units leased recently nearby. Practitioners typically describe a set of roughly three to six comparables from the prior 6-12 months. Adjustments follow for size, condition, and unit mix. The result is one number per unit.
The appraiser does not grade your lease, and does not set your loan terms. The lender reads the appraisal, reads your leases, and decides how to weigh them. On a leased building, the lender may also ask for an operating income statement showing actual income and expenses.
When Signed Leases Are the Better Fit
Signed leases carry the file when the building is stable and the tenants pay near market. In that case, the lease and the appraiser’s number land close together, and the leases confirm the income is real.
Leases do the heavy lifting in these situations:
- At-market units with documented payment history. A lease, a deposit record, and proof of payment make a clean bundle. The lender sees income that is already happening.
- Long-term tenants in a refinance. Many lenders are less likely to substitute market rent for a lease on a refinance with a long-term tenant. Treat that as a tendency, not a rule.
- Buildings where the appraisal comps are thin. If few similar rentals exist nearby, a documented lease history gives the lender a second anchor.
Leases carry a cost, too. A lease signed at a discount follows the file into the ratio. Renting a unit to a friend below market feels generous, and the DSCR math treats it as lost coverage. A lease above market is a different problem. The excess typically earns no credit, so an inflated rent roll does not raise your number.
The borrower cannot occupy any unit on a DSCR loan. A relative paying market rent under a real lease is a program-specific question. If you have a related-party or cash-paid tenant, expect to supply extra proof of payment.
When the Appraiser Rent Schedule Is the Better Fit
The appraiser’s schedule matters most when a lease cannot speak for the unit. Four situations come up often.
- A vacant unit. Commonly, the appraiser’s market rent covers it. Some programs count a vacant unit at zero instead, so confirm the treatment before you count on it.
- Month-to-month or expired leases. These often fall back to market rent, because no current contract exists.
- A purchase with no leases. A vacant property or a newly bought building can run on the appraiser’s figure alone. Asking rent from your own pro forma does not count.
- A below-market lease you plan to reset. The appraiser documents what the unit can rent for. Renewing the lease at that documented level before a refinance is a standard fix.
The schedule has a weakness. Appraisal comps lag the market, so the number can run below current asking rents in a fast-moving area. On a fully vacant 2-4 unit, the whole ratio rides on one appraiser’s comp grid. Some programs accept that market rent for a cash-out, while others want a lease, trim leverage, or count only leased units.
Worked Example: A Mixed Fourplex
Run the numbers on a modeled fourplex. These are assumptions, not market data. Give each unit the same market rent, and set the building’s coverage at 1.20x when every unit is counted at market.
- Unit A: lease about 10% above market. Counted at market.
- Unit B: lease about 15% below market. Counted at the lease.
- Units C and D: leases at market. Counted as signed.
Counting the lower of lease or market on each unit, the building lands at about 96% of full market rent. Coverage drops from 1.20x to about 1.15x. A reader who just added up the rent roll would see nearly 99% of market and expect about 1.19x. Unit A’s extra rent adds nothing, and Unit B’s discount subtracts.
Now test the vacancy swing. If one unit sits empty and the program counts it at market, coverage holds. If the program counts vacant units at zero, a fourplex loses about a quarter of its counted rent. A duplex with one vacancy loses half. Smaller buildings swing harder, which is why a vacant duplex is the riskiest version of this question.
Coverage is one gate among several. Leverage caps, credit floors, and reserve rules still apply. Most purchase files on investment property land at 75%-80% LTV. Cash-out on an investment property tops out around 75% LTV across most of the network, with about 6 months of seasoning commonly expected. A 620 credit floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest tiers. Everything here is subject to lender guidelines.
What If the Appraiser’s Rent Comes In Low?
You have options, and the order matters.
1. Read the schedule first. Check each unit’s conclusion and the comps behind it.
2. Offer better comps. Send the lender recently leased rentals the appraiser did not use. Similar units, similar location, similar condition work best.
3. Reset below-market leases. Renew at a documented market rent, then document it with a signed lease and payment history.
4. Ask for a review. A formal request through the lender is a reasonable step when the comps clearly missed.
5. Adjust the structure. A lower loan amount or a stronger ratio elsewhere in the file may be the practical answer.
Several things do not work. Asking rents do not count. A seller’s or agent’s opinion does not count. A fresh lease written above market just before the appraisal does not help, since the excess still earns no credit.
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 the Rule Bends
The lower-of rule is a lender and program convention, so it varies. Some programs lean harder on the lease, and others lean on the appraisal. A broker earns their keep by matching the file to the program. The complete DSCR loans guide covers how the coverage test fits the rest of the file.
A few edge cases tend to surprise investors:
- Coverage thresholds. 1.00 is where many select programs start, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Stronger ratios generally open better leverage.
- Rent-regulated units. A lender may use the registered legal rent regardless of the lease or the appraisal.
- Utilities and furnished units. These can explain why a lease and the appraiser’s number differ.
- Short-term rentals. Nightly income is typically not credited on the 2-4 unit long-term test. Lendmire’s piece Airbnb Income vs Long-Term Rent Fallback on a DSCR Loan for a 2-4 Unit covers that path.
One more contrast helps. Agency mortgage rules often apply a haircut to lease income; Freddie Mac’s guide uses 75% of lease gross rent and requires lenders to explain lease-versus-market gaps. DSCR does not use that factor. It divides the counted rent by PITIA. It also ignores repairs, vacancy, management, utilities, and capital expenses, so clearing 1.00 does not mean the building cash-flows.
The Balanced Verdict
Neither source wins on its own. The signed lease proves what the building earns today, and the appraiser’s schedule caps what the lender will credit. When they match, the file is simple. When they split, the lower number usually decides.
Lean on leases when units are occupied, near market, and well documented. Lean on the appraiser when units are vacant, leases are stale, or you plan to re-lease before refinancing. For most 2-4 unit buildings, the practical move is to audit each unit before the appraisal, reset the stragglers, and then see which number each lender will count.
Frequently Asked Questions
Does an above-market lease raise my DSCR?
Usually not. Under the common lower-of convention, the unit counts at the market figure, and the excess earns no credit. Some programs weigh leases differently, so confirm the treatment for your file.
Do I need a signed lease on every unit?
Not always. A vacant unit commonly runs on the appraiser’s market rent, and a purchase with no leases can run on the appraisal alone. Occupied units are usually documented with a lease, a rent roll, and payment proof.
Why does the appraiser’s number use Form 1025 and not Form 1007?
Form 1007 is the single-family rent form. On 2-4 units, Form 1025 carries the per-unit rent schedule, so that is the document your lender reads.
Can I use projected rent after renovating a vacant building?
The lender looks at the appraiser’s market rent, not your pro forma. Whether it accepts a vacant building at all depends on the program. Some cap leverage or want a lease for a cash-out.
What if my tenants pay in cash or are relatives?
Expect extra proof of payment for cash-paid rent. Whether a relative paying market rent under a real lease counts is program-specific.
Next Step
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. Lendmire is a broker that arranges these loans through select lenders in its wholesale network, across 41 markets including Washington, D.C. Qualification is subject to lender guidelines and is not a commitment to lend.
About Lendmire
Lendmire is a DSCR-focused mortgage brokerage, NMLS# 2371349, placing investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed by the lender around a property’s rental income rather than personal income documentation, which fits LLC-held rentals, self-employed investors, and portfolios scaling past conventional financed-property limits. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Form 1025/Freddie Mac Form 72 (blank form, Mar 2005)
2. Freddie Mac Seller/Servicer Guide, Section 5306.1
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Take a Build-to-Rent Community Into a Portfolio DSCR Loan · Can You Rent a DSCR-Financed Property to a Family Member? · Can a Rehabber Get a DSCR Loan at the New Value in Year One?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.