The Quick Read: Usually no. When a signed lease sits below market, most programs in Lendmire’s wholesale network count the lower of the lease or the appraiser’s market-rent opinion, so the lease generally sets the rent.
- Market rent is an appraiser’s opinion, not the borrower’s pro forma.
- Month-to-month, expired and vacant situations often lean on market rent instead.
- On 2–4 units, each unit is tested on its own.
- Renewing at documented market rent before the appraisal can fix the lease side.
- Clearing 1.00 coverage is not the same as positive cash flow.
Below-market tenants are common. A long-term tenant on legacy rent, a free month or two, a relative paying a friendly number. Each one pulls the rent used for lender review down. This article walks through how the lease and the appraisal interact, where the exceptions sit, and what an investor can do before the file goes in. For the broader mechanics, see Lendmire’s complete DSCR loans guide.
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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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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.
Key Terms Defined
Market rent: the monthly rent an appraiser concludes the unit would bring on the open market, based on comparable rentals.
Lease rent: the monthly amount in the signed, executed lease, backed by proof the tenant is paying it.
Lower-of convention: the common program practice of using whichever of lease rent or market rent is smaller as the rent used for lender review.
Rent schedule: the part of the appraisal that reports the market-rent opinion, using Form 1007 for single-family and condo, and Form 1025 for 2–4 units.
PITIA: principal, interest, taxes, insurance and any association dues, the monthly obligation the rent is measured against.
DSCR: rent used for lender review divided by PITIA. A result of 1.00 means rent equals that obligation.
Why Does the Lease Usually Win When It Is Lower?
The lease usually wins because programs want income they can verify, and they cap upside they cannot. Across the network, the lower-of approach is a program convention, not a federal rule. It protects the lender in both directions: a lease above market is capped at market, and a lease below market stays at the lease figure.
Think of it as two tests on one number. The signed lease proves what the tenant actually pays. The appraisal shows what the unit could reasonably bring. Underwriting takes the more conservative of the two. The borrower doesn’t get to pick whichever helps.
Three common beliefs break down here:
- “My signed lease is the rent number.” Not typically. It is one of two figures.
- “A future rent bump helps.” Underwriting does not credit rent increases before they happen.
- “Market rent always wins.” It does not. A below-market lease generally stays at the lease figure. The exceptions are program-specific.
Most programs we place files with behave this way. A few are more flexible, which is covered below.
Who Decides Market Rent?
The appraiser decides, not the borrower and not the broker. The appraisal does two jobs. It sets value, which drives leverage, and it sets a rent opinion, which drives coverage.
Two forms carry that rent opinion. Single-family and condo files use Form 1007, the single-family comparable rent schedule. Fannie Mae’s appraiser update describes it as the form that lets the appraiser document estimated monthly market rent on a single-family investment property. Files with 2–4 units use Form 1025, which reports unit-level rents.
One point of contrast. These are agency appraisal forms that DSCR lenders borrow. DSCR guidelines come from individual lenders and investors, not from Fannie Mae. The form is a tool; the program decides how to use the number.
The form itself shows how the appraiser handles a lease concession. The comparables list lease dates and rent concessions, and the blank form adjusts concessions to the market, not to the subject. So a free month on your tenant’s lease doesn’t drag the appraiser’s number. It can, however, drag the lease side of the comparison.
Lease Below, Above, or Equal to Market
Run one property three ways and the pattern is plain.
| Situation | Rent typically used | Notes |
|---|---|---|
| Lease below market | The lease | Coverage drops below what the unit could earn |
| Lease above market | Market rent | Excess earns nothing |
| Lease near market | Either, they match | Cleanest file |
Take a duplex-sized example in ratio terms only. At market rent, the property might clear around 1.20x. At a below-market lease, the same property could land closer to 1.00x or under it. Nothing about the property changed. The loan did, because the rent used for program review shrank. A smaller numerator can mean lower leverage, different pricing, or a loan amount that no longer fits the purchase.
That is the DSCR drag many investors don’t see coming. They underwrite the deal on what the unit can rent for. The file is underwritten on what it is renting for.
How the Answer Shifts by Lease Status
Lease status changes the answer more than almost anything else. The same unit can be tested three different ways.
| Lease status | Typical treatment |
|---|---|
| Fixed-term lease | Lower of lease or market rent |
| Month-to-month or expired | Market rent, often alone |
| Vacant | Appraiser’s rent schedule alone |
| 2–4 units | Each unit’s rent, with a rent roll |
Month-to-month or expired. With little term left to rely on, many programs replace the lease with market rent. For a tenant paying below market, this can help. The below-market lease no longer caps the number.
Vacant. The ratio runs on the appraiser’s opinion alone. No lease exists to backstop a low conclusion, so the comps matter more.
2–4 units. Each unit is evaluated on its own, with a rent roll. An above-market unit does not offset a below-market one. Averaging rents on a pro forma hides the loss the file will actually show.
Reserves, credit and leverage still apply on top. Most programs want around a 660 score, a 620 floor exists in parts of the network, and 700+ unlocks the strongest leverage tiers, all subject to lender guidelines. Purchase leverage typically runs 75%–80% LTV on an investment property. None of that changes the rent test, but a thinner ratio leaves less room to absorb it.
When Market Rent Can Win Anyway
Exceptions exist, and they are program-specific. Some channels in a wholesale network use only the appraiser’s number. Others allow a variance when a lease is in the file, or let a borrower move the appraisal to a different channel. The practical lesson is simply that channels differ.
For that reason, the question to ask before paying for an appraisal is which program rule applies to this tenant. A few lenders in the network will weigh a lease differently than the strictest overlays do. The file shape decides which fits.
Coverage below 1.00 is a separate path. Many select programs start at 1.00. A different select-lender path takes coverage below 1.00, with leverage and terms adjusted. That can matter for a below-market lease, but it is a different product with different terms, not a loosened version of the standard one.
Why Is the Rent Below Market in the First Place?
The reason shapes the fix.
- Legacy tenant. A long-term tenant on an old rent. The fix is usually a renewal at documented market rent, if the tenant agrees and the market supports it.
- Concessions. Free months or move-in credits. The lease may state a higher rent than the tenant actually paid, so deposits tell the real story. Underwriters cross-check payments against the lease, and if deposits fall short, the income used follows the deposits.
- Related-party tenants. A relative’s rent is typically set at market, with closer review of the lease and payment history. Ask whether the program allows related-party occupancy before paying for an appraisal.
- Subsidized tenancies. Voucher-based rents can run below market. Treatment varies by program.
- Rent-controlled or stabilized units. These are commonly underwritten at the legal registered rent. Treatment varies, so confirm it with the program.
Short-Term Rentals Are a Different Test
A nightly rate times 30 is not valid support for market rent. The 1007 documents monthly rent, not nightly rent. McKissock’s appraisal education piece notes the 1007 isn’t designed for short-term rentals and that the lender decides how income is ultimately counted.
Network STR programs run on their own terms: purchase up to 75% LTV, refinance around 70%, cash-out 70%. Expect a 640+ score and about 12 months of hosting history. Coverage is 1.00 on purchases and refinances. A long-term 1007 survey on an STR file is often well below actual STR income, which is why STR files get their own documentation.
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.
Options When the Lease Is Below Market
Run through these in order.
1. Check the lease before applying. On a tenant-occupied purchase, request the lease copy, payment history and any estoppel from the seller before you offer.
2. Consider renewal at market. Renewing at documented market rent before the appraisal can lift the counted rent. Mind notice periods, local rent rules, and the chance the tenant leaves. Waiting beats closing now when the ratio gap is the thing sinking the deal.
3. Don’t sign a cheap lease to fill a unit. A discounted lease signed just before the appraisal can lower the counted rent.
4. Challenge a low appraisal rent with real comps. Offer recent signed rentals. Asking prices and opinions don’t help. A well-documented appraisal reconsideration request carries comparables, not pro forma hopes.
5. Resize the loan. Lower leverage lifts coverage. A larger down payment lowers the monthly obligation and can lift the ratio, but it never erases credit floors, reserve rules or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
6. Ask about channel and structure. Some channels allow a variance or appraisal transfer. Extended terms and interest-only periods are available through select lenders, which can lift coverage.
Coverage Is Not Cash Flow
DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities and capex sit outside it. A file that clears 1.00 can still lose money each month. A below-market tenant widens that gap on both ends: the file counts less rent, and the owner earns less rent.
Reserves matter too. They are commonly around 6 months of PITIA, and loans above $1,500,000 typically step up to about 9 months. Conservative rate-term files at modest leverage under that size can see reserves waived. They vary by lender, leverage, loan size and transaction type. For cash-out, the ceiling tops out around 75% LTV on most of the network, with about 6 months of seasoning common.
Documents to Have Ready
- Executed lease and any amendments
- Proof the rent is being paid, such as bank deposits
- Appraisal rent schedule (Form 1007 or Form 1025)
- For 2–4 units, a rent roll showing each unit
- Entity documents if the property is held in an LLC, subject to lender program eligibility
- Reserves documentation
Gaps here cause more friction than the rent figure itself. A lease with no payment evidence, or a rent roll that doesn’t match the lease, gives the file a reason to be re-reviewed. DSCR loans are designed for non-owner-occupied investment properties, and because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage.
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. A related piece covers qualifying when the lease is below market rent, and the illustrative calculator on the site can show how a lower rent moves coverage. Programs change and every file is underwritten individually.
Frequently Asked Questions
Can I use market rent instead of my lease?
Usually not when the lease is lower. Most programs take the lower of the signed lease or the appraiser’s market-rent opinion. Month-to-month, expired and vacant situations are different, and market rent often carries them.
Does a lease above market help my ratio?
No. A lease above market is generally capped at the appraiser’s figure, and the excess earns nothing. Underwriting also doesn’t credit future rent increases in advance.
Is the lower-of rule a regulation?
No. It is a program convention, and it varies by program. Some channels allow variances when a lease exists, so the answer depends on which program the file fits.
What if my tenant is month-to-month?
Market rent is often used alone, because little lease term remains to rely on. That can help when the tenant pays below market, though the program still decides.
Can I dispute a low appraisal rent?
Yes, with real recent signed rentals as comps. Asking prices and opinions don’t move the number. Some channels also allow an appraisal transfer.
Does clearing 1.00 mean the property cash-flows?
No. The ratio compares rent to PITIA only.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. Fannie Mae Appraiser Update
2. Freddie Mac Form 1000 / Fannie Mae Form 1007 (blank form)
3. MMCG Invest
4. McKissock: Form 1007 and Short-Term Rental Appraisals
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 Choose a DSCR Loan or Bank Commercial Loan on a Rental · Above-Market Lease vs Appraiser Rent Schedule on a DSCR Loan · How Much a Lease and Appraiser Rent Gap Changes DSCR Loan Size
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.