Can Actual Rental Income Be Used When Market Rent Is Lower? — The Quick Read: No. When a property is already leased and the appraiser’s market-rent opinion comes in below the actual lease, DSCR underwriting is reviewed on the lower figure — the appraised market rent, not the higher lease amount. The rule runs both directions: if the lease is below market, the lower lease figure governs instead. A vacant property has no lease to compare, so the appraiser’s number stands alone.
An above-market lease feels like an asset when an investor is running their own numbers. It isn’t one on a DSCR file. Underwriters aren’t trying to reward a landlord who negotiated a strong rent — they’re trying to size a loan against income that’s durable if that tenant leaves. That’s the entire logic behind the lower-of rule, and it’s worth understanding before an investor locks a purchase price or orders an appraisal expecting the lease to carry the file.
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The Lower-of Rule, Plain and Simple
DSCR lenders compare two numbers on any occupied property: the rent on the signed lease, and the appraiser’s independent market-rent conclusion. Whichever number is lower becomes the rent used for lender review used to calculate the debt-service-coverage ratio. This isn’t a Lendmire-specific quirk — it’s close to universal practice across the DSCR and non-QM space, and every lender in a wholesale network runs the file the same way.
Picture an investor holding a signed lease that pays comfortably above what similar units in the area have recently rented for. The appraiser pulls comparable leases, adjusts for condition and size, and lands on a market-rent figure below the lease. The file is reviewed on the appraiser’s lower number. The lease doesn’t get ignored — the borrower still collects that rent every month — but it doesn’t buy extra leverage or a better coverage ratio on paper.
Run the reverse scenario: a legacy tenant paying under market, maybe a longtime renter who never got a rent increase. If the appraiser’s market-rent opinion comes back higher than the lease, the file still is reviewed on the lower number — the actual lease. The below-market rent drags the DSCR down even though the appraiser thinks the unit is worth more in rent. Same rule, same direction of conservatism, just flipped depending on which number happens to be smaller.
The mechanics work off two forms. Fannie Mae’s Form 1007, the Single-Family Comparable Rent Schedule, is where a licensed appraiser documents market rent for a one-unit investment property — Fannie Mae’s own form guidance confirms the lender uses this form to obtain that market-rent opinion directly from the appraiser. For 2-4 unit buildings, appraisers use Form 1025 instead, which aggregates rental income across every unit rather than producing a single blended comparable. Both forms are backward-looking: they reflect what comparable units have actually leased for recently, not what a landlord is asking today. That’s a meaningful distinction — it means the appraiser’s rent conclusion can lag a market that’s moving fast in either direction.
Why the Lower Number Wins
Underwriters aren’t trying to punish an investor who negotiated a good lease — they’re pricing the loan against income they can independently verify and defend if the tenant turns over. An above-market lease is real cash flow the borrower is currently collecting, but it isn’t necessarily what the unit will re-rent for once that lease ends. The appraiser’s comparable-lease analysis is the closest thing to a durable, defensible income figure a lender has, so it becomes the ceiling, not the actual rent roll.
That conservatism runs through the whole DSCR calculation. The ratio compares gross monthly rent against PITIA — principal, interest, taxes, insurance, and any HOA dues — and nothing else. Clearing 1.00 coverage means rent equals or exceeds that housing obligation; it says nothing about vacancy, repairs, property management fees, or capital expenditures, which sit entirely outside the ratio. An investor modeling a deal off an optimistic lease number, without checking what the appraiser is likely to support, is the most common way a file comes in weaker than expected at the closing table.
What Happens on a Vacant Property?
There’s no lease to compare against on a vacant purchase or a refinance between tenants, so the appraiser’s market-rent opinion is the only number in play. This is actually simpler than an occupied file — there’s no lower-of comparison to run, just one figure the underwriter uses for the entire DSCR calculation.
That makes rental comps worth reviewing before an investor locks a purchase price, especially in a submarket with thin comparable-lease data. If the appraiser’s opinion comes back lower than expected, there’s no lease sitting in reserve to argue for a higher number. Lendmire’s guide to market data reports for rental income walks through how these comparable-rent conclusions get built and what documentation typically supports them — useful reading before ordering an appraisal on a vacant deal.
Does This Work the Same for Short-Term Rentals?
Not exactly — short-term rental income runs on a separate documentation track, not the standard long-term rent schedule. The 1007 form was built for long-term leases and routinely understates what a well-run nightly-rate property actually earns, so STR files typically qualify using platform data or documented hosting history instead of an appraiser’s long-term market-rent opinion.
Most programs in Lendmire’s network want to see roughly 12 months of hosting history, a credit profile in the 640-plus range, and coverage that clears a 1.00 floor on both STR purchases and STR refinances. Purchase leverage on short-term rentals typically tops out around 75% LTV; refinance and cash-out both generally cap closer to 70% LTV. Those are separate numbers for separate transaction types, and none of them borrow from the long-term lower-of rule described above. Lendmire’s breakdown of short-term rental appraisals and market rent covers how that documentation gets built, and the piece on what happens when a DSCR file gets denied because the appraiser used long-term rent instead of Airbnb income is worth reading if an STR file has already run into that exact mismatch.
Feeding a long-term 1007 conclusion into an STR deal is one of the more common — and avoidable — ways an otherwise strong short-term rental file comes back underwater on paper.
A Practitioner’s Read on This Gap
Files with a signed lease well above the appraiser’s likely comp range are the ones most often surprised by their final DSCR number — the investor priced the deal off the lease, and the file qualifies off something lower. The fix isn’t complicated: pull a few comparable rentals in the immediate area before locking a purchase price, and treat the lease as supporting documentation rather than the number that drives leverage. On the flip side, a below-market legacy lease sometimes means an investor is leaving qualifying room on the table without realizing an appraiser’s market-rent opinion would’ve supported a stronger ratio on a purchase where the lease could be reset shortly after closing.
This dynamic matters more right now than it did a couple of years back. National rent growth has been decelerating and diverging sharply by metro — Cotality’s Single-Family Rent Index shows single-family rent growth at 1.3% year-over-year as of January 2026, down from 2.5% the year before, with rent growth cooling in 74% of metros tracked and 38% of metros posting outright year-over-year declines. When rent momentum is uneven like that, an appraiser’s trailing comparable-lease data and an investor’s forward-looking assumption are more likely to land on different numbers — in either direction — which makes the lower-of comparison a live variable on nearly every occupied file, not a rare edge case.
Worked Example: How the Rule Changes a Ratio
Say an investor is under contract on a leased single-family rental where the tenant’s rent comfortably clears the property’s full monthly obligation — call it solidly above 1.20x coverage on the lease alone. The appraiser comes back with a market-rent opinion lower than that lease, close enough to the payment that it only clears roughly 1.05x. The file qualifies at 1.05x, not the stronger number the lease would have produced. That’s still a coverage ratio above the 1.00 floor most programs use as a baseline, so the deal can still move forward — it just prices and levers off the weaker number.
Now flip it: an investor is refinancing a rental with a below-market legacy lease that only clears something close to breakeven coverage, right around 1.00x. The appraiser’s market-rent opinion, based on nearby comparable leases, is meaningfully higher — enough to put the file closer to 1.15x-1.20x if it were used. Because the actual lease is lower, though, the file qualifies at the weaker number until that lease is renewed or the unit turns over.
Coverage that lands below 1.00 on the coverage figure isn’t automatically dead — it’s a path through select lenders in the network, generally with leverage and terms adjusted to compensate. No-ratio structures also exist through select lenders, but those generally require the borrower to already own a primary residence, and they aren’t priced or leveraged the same as a standard DSCR file.
Key Terms Defined
Market rent — the appraiser’s independent opinion of what a property would rent for, built from recently closed comparable leases in the area, documented on Form 1007 (one-unit) or Form 1025 (2-4 unit).
Actual rent (contract rent) — the rent amount stated on a signed, in-place lease that the property owner is currently collecting.
DSCR (debt-service-coverage ratio) — gross monthly rent divided by PITIA (principal, interest, taxes, insurance, and HOA dues, where applicable); a ratio at or above 1.00 means rent covers the housing payment.
PITIA — the full monthly housing obligation used as the DSCR denominator: principal, interest, taxes, insurance, and association dues.
Lower-of rule — the underwriting convention of qualifying rental income at whichever figure is smaller between the actual lease and the appraiser’s market-rent opinion.
No-ratio program — a structure available only through select lenders that doesn’t require a minimum DSCR at all, generally reserved for borrowers who already own a primary residence.
DSCR loans are designed for non-owner-occupied investment properties. Because they’re business-purpose investor loans, they’re reviewed differently from a standard owner-occupied mortgage, and they qualify primarily on property-level rental income covering the payment, subject to lender guidelines.
For investors who want the fuller picture on how these files get built end to end, Lendmire’s complete DSCR loans guide covers qualification mechanics beyond just the rent comparison — leverage tiers, credit thresholds, and reserve expectations across the network.
Frequently Asked Questions
Does a recent rent increase help if the lease was just signed?
A freshly signed lease at a higher rent still gets compared against the appraiser’s market-rent opinion — recency doesn’t exempt it from the lower-of rule. If the increase reflects a genuine, documented shift in the local rental market, the appraiser’s comps should eventually catch up, but the file in front of the underwriter today is reviewed on whichever number is lower right now.
What if the property is a 2-4 unit building with mixed rent levels?
Multi-unit files run on Form 1025, which aggregates income across every unit rather than forcing a single blended comparison. That means one underperforming or below-market unit doesn’t necessarily drag the entire file down the way a single-family vacancy would — but each unit’s rent is still evaluated against comparable data.
Can an investor dispute the appraiser’s market-rent conclusion?
There’s a reconsideration process available through most lenders if the rent schedule appears to miss relevant comparable leases, similar to a value reconsideration on the sales side. It typically requires documented, recently closed comparable rentals the appraiser didn’t use — not just an investor’s own asking-rent assumption.
Does a longer lease term change how the rent is treated?
No — DSCR underwriting looks at the current monthly rent amount on the lease, not the remaining term length. A 12-month lease and a 24-month lease at the same rent are treated identically for qualifying purposes.
Is there a way to qualify above the lower-of number?
Not directly through the standard DSCR calculation — the lower-of comparison is how the rent used for lender review gets set. Investors looking for more flexibility sometimes look at sub-1.00 coverage structures or no-ratio programs through select lenders, both of which adjust leverage and terms rather than inflating the rent figure itself.
Investors who want to see how a specific lease-versus-appraisal scenario plays out on their own file can reach Lendmire at 828-256-2183 or request a quote to compare DSCR options based on the property’s income, credit profile, and available leverage.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 40 markets — 39 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
Lendmire’s Top Mortgage Workplace recognition is documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
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References
1. Fannie Mae – Form 1007 Official Form Page
2. Cotality – National Rent Growth Press Release
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.
