The Quick Read: Usually, but not by itself. Across the wholesale network, the signed lease counts as evidence of in-place rent, and the underwriter then compares it with the appraiser’s market-rent opinion and generally uses the lower of the two. A lease below market sets the rent. A lease above market earns no extra credit.
- The lease is one of two rent figures, and the lower one usually controls.
- An above-market lease does not lift the coverage ratio.
- A vacant or newly acquired property runs on the appraisal’s market rent alone.
- Month-to-month and expired leases often lean on market rent, depending on the program.
- Clearing 1.00 is not the same as positive cash flow.
Lendmire is a broker. It arranges these loans through select lenders in a wholesale network covering 41 markets, including Washington, D.C. Every file is reviewed under lender guidelines, and nothing here is a commitment to lend.
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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.
How Does a Lender Actually Use a Lease?
The lease proves what the tenant owes. The appraisal tests whether that number is realistic. Most programs we place files with take the lower of the two, because the lender is underwriting the property’s ability to carry the payment, not the landlord’s hopes.
DSCR is rent used for lender review divided by PITIA: principal, interest, taxes, insurance, and association dues where they apply. The ratio compares rent to that full monthly obligation. Which rent goes in the numerator is the whole question here.
This is a program convention, not a law. No federal regulator sets how DSCR rent is chosen, because these are business-purpose investor loans. That is why lenders in the same network can treat the same lease differently. Some use only the appraiser’s figure. A few allow a variance when a seasoned tenant is in place. Ask which channel applies before the appraisal is ordered, not after.
For the bigger picture on how these loans work, see Lendmire’s complete DSCR loans guide.
Key Terms Defined
Executed lease: A lease signed by both landlord and tenant, stating the rent, term, and parties.
Market rent: The monthly rent the appraiser estimates the property would bring from a new tenant, based on leased comparables.
Rent schedule (Form 1007 or 1025): The appraisal exhibit that reports market rent. Form 1007 covers a single-family investment property. Form 1025 covers 2–4 units and reports rent per unit.
PITIA: Principal, interest, taxes, insurance, and association dues. It is the denominator in the coverage ratio.
Month-to-month tenancy: A tenancy with no fixed end date, which lenders often treat as weaker evidence than a term lease.
Where Does the Appraisal Rent Come From?
The appraiser attaches a rent schedule to the report. Fannie Mae’s appraiser update describes the Form 1007 as documenting estimated monthly market rent, and the form’s own instructions on the joint Freddie Mac Form 1000 and Fannie Mae Form 1007 say the appraiser uses it to estimate market rent of the subject.
A quick contrast, and only that: agency loans require the 1007 for a one-unit investment property when rental income is used to qualify, per the Fannie Mae Selling Guide. DSCR programs borrowed the form. They set their own rules for what to do with it.
The appraiser builds the number from recently leased comparables. Disputing a low figure rarely works. The appraiser values the property on sales comps and is unlikely to change a rent opinion because the borrower disagrees. The workable fixes are a stronger comp packet submitted early or a different lender channel.
Which Rent Counts in Each Situation?
| Situation | Rent the lender leans on | What to provide |
|---|---|---|
| Lease above market | Market rent | Lease, proof of payment |
| Lease below market | Usually the lease | Lease, proof of payment |
| Lease equals market | Either, they match | Lease, proof of payment |
| Vacant or new purchase | Market rent | Appraisal only |
| Month-to-month or expired | Often market rent | Lease history, payment proof |
| 2–4 units | Each unit tested on its own | Per-unit leases, rent roll |
Program rules vary, so treat the table as the common pattern, not a promise. Short-term rentals work differently. Standard programs use long-term market rent. STR-specific programs on select lenders use their own income methods.
Worked Example: One Property, Three Leases
These are modeled illustrations, not market data. Take one property and hold the payment constant.
- Lease above market. The lease supports roughly 1.35x. Market rent supports roughly 1.15x. The file counts at about 1.15x. The extra rent buys nothing.
- Lease below market. A lease about 15% under market can pull coverage from roughly 1.20x down to roughly 1.02x. The lease governs, so the file counts at the lower number.
- Lease at market. Both figures agree. No friction.
The below-market case is the one that costs money. On a purchase it can shrink the loan size or move pricing. On a cash-out refinance with legacy rents, it can decide whether the deal clears at all. Run coverage on the lower figure before you write an offer or order the refinance.
What Documents Make the Lease Usable?
A lease alone is rarely enough. Programs generally want proof the tenant actually pays it. In practice the file needs:
- The executed lease, signed by all parties, with rent and term stated.
- Any amendments, concessions, or free-rent periods, disclosed up front.
- Deposit records and recent payment evidence, such as bank statements.
- A rent roll for multi-unit properties.
- Landlord and tenant names that match the entity and the file.
Free-rent periods and concessions are where files get kicked back. If the paperwork shows base rent separately from credits, premiums, or option fees, the underwriter can see the recurring number. If it blends them, the underwriter discounts it.
Entity documents matter too. If the property is held in an LLC, that structure is subject to lender program eligibility, and the landlord named on the lease should match the borrowing entity.
Edge Cases That Trip Files
Expired or month-to-month leases. Many programs lean on market rent here. Some accept a month-to-month tenant with a long payment history. It depends on the lender.
Family or related-party tenants. A discounted lease lowers the ratio. A clean payment trail helps, but it does not guarantee the rent counts as written.
Lease-option and rent credits. Option fees and credits are not recurring rent. Expect them to be stripped out.
Portfolio and blanket loans. Each door is reviewed, then the pool is tested together. A vacant door uses appraisal rent.
Partial vacancy in 2–4 units. Occupied units show lease rent, subject to the lower-of test. Vacant units use market rent from the appraisal.
Future increases. Scheduled bumps do not count until they happen.
Occupancy rules still apply. These are non-owner-occupied investment loans, so the borrower cannot live in the property.
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 Lease Is the Problem?
Fix it in order of cheapness.
1. Ask first. Before the appraisal is ordered, ask the broker whether a lease-variance channel or appraisal transfer exists for a lease above the 1007.
2. Renew at documented market rent. If the lease sits below market, a renewal before the appraisal can fix the lease side, as long as the new rent is realistic and documented.
3. Add comps. If the appraisal rent looks low, give the appraiser recent leased comparables early.
4. Adjust the structure. More down payment lowers the payment and can lift the ratio. It does not erase leverage caps, credit floors, or reserve rules.
5. Consider other paths. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. 1.00 is where many select programs start.
Discounting rent to fill a unit has the same cost. The lower lease can cut coverage and loan size.
Purchase Versus Refinance
On a purchase, the property is often tenant-occupied at closing or vacant. If it is vacant, the appraisal rent stands alone. On a refinance, most programs expect the property to be leased, and the lease plus payment history carries more weight. Purchase leverage typically runs 75%–80% LTV on an investment property. Cash-out on standard rentals tops out around 75% LTV, and rate-and-term can reach 85% on select programs. Typical credit tiers run 620 to 700, and reserves are commonly about 6 months of PITIA, stepping up to about 9 months above $1,500,000. All of that is subject to lender guidelines, and the network handles loans up to $3,000,000 on standard programs.
If cash-out proceeds are part of the plan, Lendmire’s piece on whether a rental lender will accept cash-out refinance funds covers that side.
Coverage Is Not Cash Flow
A ratio above 1.00 means rent covers PITIA. That is all. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation. A file can clear coverage and still lose money on the property. Underwrite your own reserves separately from the lender’s.
Frequently Asked Questions
Will a DSCR lender use my signed lease as the rent?
Often, but the underwriter compares it with the appraiser’s market rent and generally uses the lower figure. If the lease is lower, it controls. If it is higher, market rent controls.
What if my lease is higher than the appraisal’s rent?
You get no credit for the excess on most programs. Some channels in the network allow a variance for a seasoned tenant, so ask before the appraisal is ordered.
What if there is no lease because the property is vacant?
The appraisal’s market rent is the only income figure. That is common on new purchases.
Does a month-to-month tenant count?
Sometimes. Many programs lean on market rent for month-to-month or expired leases, and some accept them with a solid payment history. It is program-specific.
Is the lower-of rule a federal requirement?
No. It is a lender and program convention. DSCR loans are business-purpose, non-agency loans, so no federal rule picks the rent figure.
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. Tax treatment varies; consult a qualified professional.
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.
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References
1. Fannie Mae Appraiser Update
2. Freddie Mac Form 1000 / Fannie Mae Form 1007
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Super Jumbo DSCR Lender Tests a Below-Market Family Lease · DSCR Reassessment Requirements for a California Rental Purchase · DSCR Income Rules for a Corporate Rental Near a Plant
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.