The Quick Read: On a DSCR cash-out refinance, the lender counts property-level rent, not your personal income, and it usually uses the lower of your signed lease and the appraiser’s market rent. That rent is divided by the full payment on the new, larger loan. Programs and lenders differ, so treat every figure below as typical.
- Counted rent is usually the lower of the lease and the appraiser’s market rent. A lease above market earns no extra credit.
- The test is gross rent divided by PITIA (principal, interest, taxes, insurance, and any HOA dues) on the new loan.
- Cash-out raises the balance, so coverage is tested against the larger payment.
- Equity and rent coverage are two separate limits. Either one can cap your proceeds.
- Clearing 1.00 does not mean the property cash flows.
Most investors assume the lease is the number. It often is not. This guide walks through what the lender looks at, in order, and where the usual rule breaks.
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What Does “Counting Rental Income” Actually Mean?
Counting rental income means the lender picks one monthly rent figure for the property and uses it to test whether the rent supports the new loan. No agency or regulator writes that rule for DSCR loans.
Here is the logic. The lender is lending against the property, not your paycheck. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. So the property has to show it can carry the debt.
Across our wholesale network, the pattern is consistent. The lender wants a documented, defensible monthly rent. It does not want your pro forma or a listing price. It wants evidence.
Key Terms Defined
DSCR (debt service coverage ratio): Monthly rent divided by the monthly payment, shown as a ratio like 1.20.
PITIA: Principal, interest, taxes, insurance, and any HOA dues. It is the full monthly obligation on the loan.
Market rent: What an appraiser concludes the unit would rent for, based on comparable rentals nearby.
Cash-out refinance: A new, larger loan on a property you own, where you take the difference in cash.
LTV (loan-to-value): The loan balance as a percentage of the appraised value.
Seasoning: The ownership time a lender wants before it allows cash-out. Most programs we place files with expect about 6 months, measured from title recording.
Gross rent: Rent before vacancy, repairs, management, and other operating costs.
How Does Underwriting Count the Rent, Step by Step?
Underwriting follows a predictable sequence. Each step either confirms the rent or lowers the number the lender will use.
Step 1: Property check. The property must be a non-owner-occupied investment property. Manufactured homes, log homes, and barndominiums are not offered in our network’s DSCR programs.
Step 2: Documents. You supply an executed lease and proof the tenant pays, such as deposits or bank statements. The lender also reviews entity papers, title, and reserves. LLC-held files go through, subject to lender program eligibility.
Step 3: Appraisal. The appraisal does two jobs. It sets value, which drives LTV. It also sets market rent, which drives coverage. For one-unit properties and condos, the rent comes from Form 1007, the Single-Family Comparable Rent Schedule. For 2-4 unit properties, Form 1025, the Small Residential Income Property Appraisal Report, builds the rent analysis into the report. Both form names are listed on Fannie Mae’s appraiser and property underwriting page. DSCR programs borrow the form names, not the agency rules.
Step 4: Rent selection. On a tenant-occupied property, most programs take the lower of the lease and the appraiser’s market rent. This is a lender convention, not a law. A vacant or between-tenant property runs on market rent alone.
Step 5: Payment cross-check. Underwriters compare the lease to actual payment evidence. If deposits fall short of the lease, the income used tends to follow the deposits. A signed lease alone is generally not proof of income.
Step 6: Coverage test. Counted rent is divided by PITIA on the new cash-out loan. The result is measured against the program’s floor.
Step 7: Leverage test. Separately, the lender checks LTV. On a cash-out refinance of a standard rental, the ceiling is 75% across most of the network.
As McKissock’s appraiser education piece explains, Form 1007 estimates monthly market rent from comparable one-unit rentals. On a refinance it is used alongside lease agreements or traditional personal-income documentation, and the income decision falls under the lender’s scope. In plain terms, the appraiser opines on market rent. The lender decides what to count.
Which Rent Wins: The Lease or the Appraiser?
Usually the lower one wins. A lease above market earns no extra credit, and a lease below market becomes the counted figure.
Picture three situations, described by ratio only.
- Lease above market. Your tenant pays more than comparable rentals. The appraiser’s lower figure is counted, and coverage comes in thinner than your own math showed.
- Lease below market. A long-term tenant has a legacy rent. The lease governs while it stays in place, so coverage stays tight.
- Lease matches market. Nothing changes. The number you expected is the number used.
Some lenders will let an in-place lease stand even when the rent schedule is lower, if the tenants have been there a few months. That is an exception, not the baseline. Ask the specific program before you assume it.
What Changes on a Cash-Out Refinance?
The new payment changes. Cash-out raises the loan balance, so the same rent now sits against a bigger PITIA, and coverage drops.
Consider a rental that clears roughly 1.40 on its current loan. Pull cash out at the 75% ceiling and the payment climbs. The same rent might now cover at roughly 1.10. The rent did not change. The denominator did.
That is why cash-out has two binding limits:
- Equity (LTV). This caps how much you can borrow.
- Rent coverage. This decides whether the property supports that loan.
Either can be the tighter limit. A property with plenty of equity but modest rent can hit the coverage limit first. Rent can cap proceeds before equity does. 1.00 is where many select programs start, and stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
Your equity-based proceeds are never a guaranteed figure. They depend on rent used for lender review, PITIA, reserves, and the leverage ceiling. Our complete DSCR loans guide covers the full qualification picture.
DSCR Coverage Is Not Cash Flow
DSCR compares rent to PITIA and nothing else. A file can clear 1.00 and still lose money each month.
Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation. That is the residential-style ratio: gross rent against PITIA. Commercial-style DSCR is different. It divides net operating income by debt service. Sources use both formulas, so confirm which one your lender means.
Treat the ratio as the lender’s test, and build your own reserve for the costs it ignores.
Where Does the General Rule Break?
The lower-of rule is a convention, and several situations bend it. These are the named edge cases.
Short-term rentals. A nightly rate multiplied by 30 is not a supported market rent. Fannie Mae told appraisers in its June appraiser update that Form 1007 cannot estimate a nightly fee and must be supported by monthly lease comparables. Class Valuation’s appraisal blog makes the same point and says a separate income analysis is needed. STR income is documented separately, for example through platform statements, bank deposits, or a market-data projection. In our network, STR cash-out tops out around 70% LTV, and lenders generally expect a 640+ score and about 12 months of hosting history. 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. Lendmire’s piece How Seasonal Income Counts When Timing a Short-Term Rental Cash-Out goes deeper.
Month-to-month or expired leases. These typically get market rent with the lease as support. The file is weaker, not blocked.
Non-paying tenant or arrears. The lease cannot be counted as proof of income. The lender may fall back to market rent, exclude the unit, or ask you to wait.
A new lease signed recently. It usually counts as in-place rent, but you need proof of the deposit and first month’s rent. A new lease does not shorten the ownership clock for cash-out seasoning.
Multi-unit with a vacant unit. Leased units rest on leases and payment proof. The vacant unit is typically counted at the appraiser’s market rent. Treatment varies by program.
Rent increases. An increase counts only if it is in a signed lease, the tenant is paying it, and the market-rent opinion supports it. Raising rent after the appraisal is ordered does not change the appraiser’s opinion.
Agency contrast. Under conventional agency rules, rent documentation works differently. Fannie Mae’s appraiser update notes that Form 1007 is required only when rental income qualifies a one-unit investment property in conventional lending. That is a different system. Do not carry those rules into a DSCR file.
What Should You Do Before the Appraisal?
Act before the appraisal is ordered. Once the appraiser forms an opinion, your options narrow.
1. Renew below-market leases at market. The lease governs while it stays in place, so a legacy rent costs coverage.
2. Document any increase. Use a signed lease and payment proof, and stay within what comparables support.
3. Gather payment evidence. Bank statements or deposit records should match the lease.
4. Know your reserves. They commonly run around 6 months of PITIA, and about 9 months for loans above $1,500,000, varying by lender and file.
5. Ask what rent figure the quote assumes. Also ask what happens to terms if market rent comes in lower.
If the appraiser’s rent comes in low, review the comparables used and request reconsideration with better ones. Putting in more equity lowers the loan and the payment, which can lift coverage. A larger cushion never erases leverage caps, credit floors, or reserve rules, though. The strongest files clear both tests: enough equity and enough rental coverage.
What About BRRRR Exits and Pro Formas?
A BRRRR refinance puts the same appraisal in charge of two tests. The post-rehab report sets value for LTV and rent for coverage, so it can limit proceeds on either side.
Pro formas also tend to overstate. A property bought with a high in-place lease, or modeled on asking rent, may be counted at a lower market figure. Listing and asking rents do not count. Lenders use leases and comparable rentals. Proceeds can land smaller than modeled, so build the plan on the conservative number.
Credit matters too. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers. Loan sizes run up to $3,000,000 on standard programs, with smaller balances routed through select lenders. All of it is subject to lender guidelines and individual underwriting.
Common Myths About Counted Rent
My lease is the rent number. Usually the lower of the lease and market rent counts.
A higher lease means a bigger loan. Not once the lease passes market rent.
The appraiser grades my lease. The appraiser builds an independent opinion from comparable rentals.
DSCR means no underwriting. Credit, reserves, LTV, property type, title, and entity documents are all still reviewed. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines.
Passing 1.00 means the property cash flows. DSCR counts PITIA only.
The lower-of rule is a federal rule. It is a lender convention.
Frequently Asked Questions
Does a lender count my lease or the appraiser’s rent?
Usually whichever is lower. A vacant property runs on market rent alone. Some lenders will let an in-place lease stand if it is seasoned, so confirm the specific program.
Can I raise rent to get a bigger cash-out?
Yes, if it is documented. You need a signed lease, proof the tenant is paying, and a market-rent opinion that supports the increase. Do it before the appraisal is ordered.
Does cash-out change my coverage ratio?
Yes. The larger loan means a larger PITIA, so the same rent produces a lower ratio. Coverage is tested against the new payment, not the old one.
Can I use nightly short-term rental income?
Not by multiplying the nightly rate by 30. STR income is documented separately, such as through platform statements or bank deposits, and leverage is lower. Many lenders want about 12 months of hosting history.
Is coverage below 1.00 ever possible?
Yes, through select lenders in the network, with leverage and terms adjusted. 1.00 is where many select programs start, so expect a smaller loan relative to value on lower-coverage files.
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 helpful companion read is Lendmire’s piece How to Tell Lender Fees From Prepaids on a Rental Cash-Out Refinance.
Tax treatment varies; consult a qualified professional.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
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References
1. Fannie Mae: Appraisers and Property Underwriting
2. McKissock: Form 1007 and Short-Term Rental Appraisals
3. Fannie Mae: Appraiser Update, June 2024
4. Class Valuation: Why Form 1007 Can’t Be Used for Short-Term Rentals
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Rental Cash-Out Refinance Criteria for Making Financial Sense · Is a Rental Cash-Out Refinance Still Worth It After Closing Costs? · Rental Cash-Out Refinance Closing Cost Rules for an Investor
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.