The Quick Read: Usually, yes. Most programs in our wholesale network count the lower of two numbers for each unit: the signed lease or the appraiser’s market-rent opinion, so a lease below market holds the counted rent down and a lease above market earns no credit for the excess.
- Each unit is tested on its own, then the counted rents are added together.
- Vacant units, and often month-to-month or expired leases, fall back to the appraiser’s market rent.
- This is a program convention, not a federal rule, so details differ by lender.
- Clearing 1.00 coverage is not the same as positive cash flow.
- Renewing a below-market lease at documented market rent before the appraisal is the cleanest fix.
That is the direct answer. The rest of this page covers how the numbers get built, where the rule bends, and what you can do before the appraisal lands.
DSCR Calculator
Run the numbers in your market
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.
Key Terms Defined
DSCR (debt service coverage ratio) is the property’s counted monthly rent divided by its monthly housing payment. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines.
PITIA means principal, interest, taxes, insurance, and association dues. It is the full monthly obligation on the building.
Lease rent is what the tenant actually pays under a signed agreement.
Market rent is the appraiser’s opinion of what the unit would rent for on a standard long-term lease today.
Rent roll is a simple table listing every unit, its tenant, its rent, and its lease status.
LTV (loan-to-value) is the loan amount as a percentage of the property’s appraised value.
Who Decides the Rent Number?
The appraiser decides the market-rent half of the test, not you and not the seller. On a 2-4 unit building, the appraiser completes Form 1025, the report that Fannie Mae’s Selling Guide lists as the Small Residential Income Property Appraisal Report for two- to four-unit properties. DSCR loans are not agency loans. The files simply borrow the form because it does the job.
The form produces two outputs. One is value, which drives leverage. The other is market rent for each unit, which drives coverage. An appraisal practitioner’s explainer describes the report as covering the unit mix, market value, and rental income analysis, including an operating income statement with verified rents.
One common mix-up is worth clearing up. Form 1007 is the single-family rent schedule. A duplex, triplex, or fourplex uses Form 1025, with rents broken out unit by unit. Fannie Mae’s appraiser forms page lists Form 1025 among the standard forms.
How the Lower-of Rule Works, Step by Step
Here is the sequence most programs follow.
1. Property check. The building has 2-4 units and is non-owner-occupied. DSCR loans are designed for investment properties, and they are reviewed differently from a standard owner-occupied mortgage. Five or more units move to commercial underwriting.
2. Appraisal. The appraiser reports value and a market rent for each unit.
3. Rent per unit. An occupied unit counts the lower of its lease and its market rent. A vacant unit counts market rent, if the program allows it.
4. Sum the units. The counted rents are added together and divided by one PITIA.
5. Compare to the floor. The result is tested against the program’s coverage floor and leverage grid.
Step 3 is where investors get surprised. Units are not averaged. An above-market unit does not offset a below-market one. A rent roll that looks healthy in total can still produce a thinner counted number than you expected.
Step 4 is why small buildings often look strong. Several rents sit against a single payment, so a 2-4 unit building frequently shows better coverage than a single-family rental at a similar price.
Which Rent Counts in Each Situation?
The table below shows the typical treatment. Programs differ, so treat it as the usual pattern across our network, not a universal rule.
| Unit situation | Rent usually counted | Why |
|---|---|---|
| Lease below market | The lease | Lower of the two |
| Lease above market | Market rent | Excess earns no credit |
| Lease equals market | Either; same number | No gap |
| Vacant unit | Market rent | Appraiser’s schedule |
| Month-to-month or expired | Often market rent | No term to rely on |
| Newly signed lease | Lower of lease or market | Same test, fresh documents |
The documents behind each row matter too. Files typically need the leases, a rent roll with one row per unit, proof of payment such as bank deposits, and the Form 1025 rent schedule. If the borrower is an LLC, entity documents come along, subject to lender program eligibility.
A Fourplex Walkthrough (Modeled, Not Market Data)
Picture a fourplex with four different lease situations. Every input here is a modeled assumption for illustration, not sourced market data.
- Unit 1: lease below market. The lease counts.
- Unit 2: lease above market. Market rent counts.
- Unit 3: lease equal to market. No change.
- Unit 4: vacant. Market rent counts.
Unit 2’s premium disappears, and unit 1’s discount stays. The building’s counted rent ends up lower than the sum of what the owner actually collects. Say that sum puts coverage near 1.15x on paper, and the counted rent trims it into the low-1.0 range. That is still above 1.00, but with much less cushion for the pricing and leverage tiers that reward stronger ratios.
Now renew unit 1 at documented market rent before the appraisal. Counted rent for that unit rises to market, and coverage lifts back toward the stronger side of the range. Nothing about the building changed except one signed document.
There is a second effect that investors miss. Rent sets one loan limit and value sets another. The smaller of the two becomes the loan size. When rent is the binding limit, a shortfall in counted rent can shrink the loan by a larger percentage than the rent shortfall itself. That means more cash to the closing table.
Why Building Size Changes the Stakes
One empty unit hurts a duplex far more than a fourplex. Lose a unit in a duplex and half the rent is exposed. Lose one in a fourplex and a quarter is.
| Building | Share of rent tied to one unit |
|---|---|
| Duplex | About one half |
| Triplex | About one third |
| Fourplex | About one quarter |
That does not make a duplex a bad choice. It means a duplex file needs both leases clean, current, and near market, because there is no spare unit to absorb a problem.
The Edge Cases That Trip Up Files
Month-to-month, expired, or no written lease. Many programs fall back to market rent. Some are less forgiving or apply a stress factor. Get the lease in writing before the appraisal.
Vacant units. Market rent usually covers a vacant unit, if the program allows it. A few programs count a vacant unit at zero, and heavy vacancy can cause a building to be treated as unleased. Ask before you contract.
Related-party tenants. Expect market rent and closer review of the lease and payment history. Owner occupancy of any unit makes the building ineligible for a DSCR loan.
Short-term rental units. The appraiser’s schedule prices long-term leases. Nightly rate times thirty is not accepted as market rent. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
Evictions or units under renovation. Rent may be excluded until possession is regained or the work is finished.
Condo, PUD, or co-op buildings. Form 1025 still applies, but a project questionnaire becomes an extra document.
Rent credits and option fees on lease-option structures do not add to counted rent.
Rent bumps. Underwriting does not credit an increase before it takes effect.
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.
What If the Appraisal Rent Comes in Low?
Work the problem in order.
1. Check the facts. Confirm unit counts, square footage, and condition on the report. Factual errors can be raised with the appraiser.
2. Renew at market. If the gap is your own below-market lease, a renewal at documented market rent addresses it directly.
3. Submit rental comps. Actual comparable rentals can support a review of the appraiser’s figures. A review is a request, not a guarantee.
4. Adjust the structure. A larger down payment lowers the monthly payment and can lift coverage. It never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
5. Look at other paths. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. Interest-only periods and extended terms are also available through select lenders.
One thing to avoid: signing a discounted lease just to fill a unit shortly before a refinance. It can pull counted rent down at the worst moment.
Where the Program Figures Land
Across our wholesale network, most purchase files on investment properties land at 75%-80% LTV, so 20%-25% down. Select high-leverage programs reach 85% LTV on a purchase with roughly a 700+ score. A cash-out refinance on a standard rental tops out around 75% LTV, with about six months of seasoning commonly expected. Our companion piece Lower vs Higher LTV DSCR Cash-Out on a 2–4 Unit Rental covers that side.
On coverage, 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 open better pricing and leverage.
Credit works the same way. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers. Reserves vary by lender, leverage, and loan size, commonly around 6 months of PITIA and stepping up to about 9 months above $1,500,000. Standard programs run up to $3,000,000. Manufactured homes, log homes, and barndominiums are not offered. Every figure here is subject to lender guidelines, and each file is underwritten individually.
Across many lenders’ guidelines, the lower-of treatment is the most common pattern, but haircuts on gross rent, stress factors on short leases, and vacant-unit handling all differ. That is why asking the lender up front beats assuming. Our complete DSCR loans guide walks through the broader qualification picture.
Coverage Is Not Cash Flow
A file that clears 1.00 can still lose money. The ratio compares counted rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses all sit outside it.
Treat the coverage number as a lender’s test and run your own budget separately. On a small building, one roof or boiler can erase a year of thin margin.
Common Misconceptions
My signed lease is the rent number. It is one of two figures, and the lower one wins.
A higher lease raises my DSCR. Market rent caps what counts.
Market rent always wins. A below-market lease generally stays at the lease figure.
A fully leased building is safe. Each unit is tested separately.
The lower-of rule is federal. It is a program convention, which is why lenders differ.
DSCR means no paperwork. Credit, assets, entity papers, insurance, and the appraisal are all still required. Qualification runs on the property’s income, not on personal income documentation.
Questions to Ask a Lender Before You Contract
- Do you count the lower of lease or market rent on each unit?
- How do you treat vacant units, and is there a limit on how many?
- What happens with month-to-month or expired leases?
- Do you apply any haircut or stress factor to gross rent?
- Is there a path below 1.00 coverage, and how do leverage and terms change?
Frequently Asked Questions
Can I use my higher lease to qualify?
No. A lease above market earns credit only up to the appraiser’s market rent. The excess is ignored, so a premium tenant does not lift coverage past the market figure.
What if one unit is vacant at purchase?
Most programs count the appraiser’s market rent for that unit, alongside leases on the occupied units. Some programs are stricter and count a vacant unit at zero, so confirm the treatment before you go under contract.
Does one above-market unit offset a below-market unit?
No. Units are tested separately and then summed. The premium on one unit is trimmed to market, and the discount on another stays at the lease figure.
Does a scheduled rent increase count?
Not before it takes effect. Underwriting generally credits the rent in place today. Renewing at documented market rent before the appraisal is the reliable way to move the number.
Is the lower-of rule the same at every lender?
No. It is a common convention, not a regulation. Haircuts, month-to-month treatment, and vacant-unit limits differ by program, which is why comparing several lenders’ guidelines matters.
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. Reach the team at 828-256-2183 or request a quote. Tax treatment varies; consult a qualified professional.
A fourplex with four clean, market-rate leases is the file that gets the fewest surprises at appraisal, and the work of getting there happens before you ever order it.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your 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
2. NJ Real Estate Appraisal, Form 1025 Guide
3. Fannie Mae, Appraisers and Property Underwriting
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can a 5-Unit Building Qualify for a DSCR Loan? · How to Fund a Rental Remodel With a HELOC and Refinance to DSCR · Can a DSCR Lender Release Half of a New-Construction Duplex?
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
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.