The Quick Read: A DSCR lender sets a rent used for lender review for each unit, adds those rents together, and divides the total by one payment for the whole building. That payment is principal, interest, taxes, insurance, and any association dues (PITIA). The building gets one coverage ratio, not one per unit.
- Each unit is credited at the lower of its signed lease or the appraiser’s market rent.
- Vacant units are generally counted at market rent, though treatment varies by program.
- On 2-4 units, the test uses gross rent over PITIA, not net operating income.
- 1.00 is where select programs start, and stronger ratios open better pricing and leverage.
- Clearing the ratio is not the same as positive cash flow.
You can read the broader mechanics in 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 29, 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 29, 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): the monthly rent a lender credits, divided by the monthly housing payment on the loan.
PITIA: principal, interest, taxes, insurance, and association dues. It is the full payment in the divisor.
Market rent: the appraiser’s opinion of what a unit would rent for today, based on comparable rentals.
Rent roll: a list of every unit with its tenant, monthly rent, and lease end date.
Form 1025: the appraisal report for two- to four-unit properties. It carries the unit-by-unit rent schedule.
LTV (loan-to-value): the loan amount as a percentage of the property’s value.
Ancillary income: extra income such as parking, storage, or pet fees, separate from base rent.
Why Is a Fourplex One Loan, Not Four?
A 2-4 unit building is one property with one mortgage, one tax bill, and one insurance policy. So the lender runs one calculation. Every unit’s credited rent goes into a single numerator. One PITIA sits underneath it.
This is why small multifamily often shows stronger coverage than a single-family home at a similar price. Several rents share one set of fixed costs. One empty unit also hurts less than an empty house, because the other units keep paying.
A standard single-property DSCR loan tests each building on its own. Blanket or portfolio loans can pool rent and payments across properties, but that is a different structure.
Where Does the Appraiser Fit In?
The appraiser sets the second number the lender cares about, and it is separate from value. On a 2-4 unit purchase or refinance, the appraisal is typically done on Form 1025. The Fannie Mae Selling Guide names Form 1025 as the report for two- to four-unit properties. It names Form 1007 as the rent schedule for one-unit investment properties.
DSCR loans are not agency products. Lenders borrow the form names as a convention, not the agency rules. Program terms come from each lender’s own guidelines.
The Form 1025 itself has the appraiser reconcile the indicated market rents into an opinion of market rent for each unit. A sample completed Form 1025 shows the layout. Each unit lists its rental status, lease expiration, current rent, and market rent.
Value drives LTV. Market rent drives coverage. They are produced separately, so a strong value can pair with a weak rent opinion. That is why the appraiser is a second gatekeeper.
How Does Underwriting Count Rent, Step by Step?
Across the programs we place files with, the sequence is consistent.
1. Confirm the property type. It must be a two-, three-, or four-unit residential building. Five or more units move to commercial underwriting.
2. Order the appraisal. It returns value and a per-unit market rent schedule.
3. Collect the rent roll and leases. Each unit needs its tenant, rent, and lease end date.
4. Set rent used for lender review per unit. Use the lower of the signed lease or market rent.
5. Handle units without a usable lease. Vacant, month-to-month, and expired-lease units are generally counted at market rent. Some programs haircut a vacant unit’s rent. Treatment varies, so check the specific guideline.
6. Add the units. That total is the numerator.
7. Build PITIA. Include principal, interest, taxes, insurance, and dues. On an interest-only loan, the divisor has no principal.
8. Divide. A result of 1.00 means rent equals the payment.
9. Test against leverage. The loan is sized to what both the equity test and the rent test allow.
Unit by Unit: Which Rent Number Wins?
Lenders use the lower figure because it is the more conservative evidence. A lease above market may not last. A market rent above a lease cannot be collected until the lease turns over.
| Situation | Rent credited | Evidence |
|---|---|---|
| Lease at market | Lease or market | Lease, rent roll |
| Lease above market | Capped at market | Lease, appraisal |
| Lease below market | The lease | Lease, rent roll |
| Month-to-month | Generally market | Rent roll, payment proof |
| Expired lease | Generally market | Rent roll, payment proof |
| Vacant | Generally market | Appraisal schedule |
Some programs adjust these cells, and a few allow payment history to support more. Treat the table as the common pattern, not a universal rule.
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 Does a Mixed Fourplex Look Like?
Picture a fourplex with four different situations. One unit is leased at market. One tenant has a long-tenured, below-market lease. One lease is above what the appraiser supports. One unit is vacant.
Credited rent is the market-rate lease at its own figure, the low lease at its low figure, the high lease cut down to market, and the vacant unit at market rent (possibly haircut). Add those four, divide by one PITIA, and you have the ratio. The above-market lease helps less than you hoped. The below-market lease holds coverage down until it renews higher.
Say this building lands around 1.10x. That clears 1.00, where select programs start. If the vacant unit were leased and the low lease renewed at market, coverage could improve. These are modeled illustrations, not sourced market data.
What Counts, What Doesn’t?
Base rent from each unit is the core. Other income gets scrutiny.
| Income type | Typical treatment |
|---|---|
| Base rent per unit | Counted, per rules above |
| Parking, storage, pet fees | Scrutinized; program-dependent |
| Utility reimbursements | Scrutinized; program-dependent |
| One-time fees, deposits | Generally excluded |
When in doubt, plan on base rent carrying the file and treat extras as upside.
What If the Appraiser’s Rent Comes In Low?
This happens, and it can shrink the loan. A few steps help.
- Hand the appraiser a clean rent roll and the leases up front.
- Document recent rent increases and renewals.
- Lease vacant units before applying where feasible.
- Check the unit mix. Studios and two-bedrooms are compared against different rentals.
- If coverage still falls short, a larger down payment lowers the payment and can lift the ratio.
More down payment helps the ratio. It never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
What Does the Formula Leave Out?
Quite a lot. DSCR compares rent to PITIA only. Vacancy, repairs, management, utilities, and capital expenses sit outside the calculation. A building can clear 1.00 and still run thin on real cash flow.
This is also why some calculators disagree with the lender. Generic explainers often show net operating income (NOI) over debt service. That is the commercial method used at five units and up. On 2-4 units, lenders use gross rent over PITIA. If you deduct expenses first, your number will come out lower than theirs.
Can You Live in One of the Units?
Generally not on a DSCR loan. 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. If you plan to live in a unit, a different loan type fits better.
Some programs credit market rent on a unit the owner vacated. Others do not. Confirm before you count on it.
Where Do Programs Differ?
Across our wholesale network, lenders disagree on a few points. Vacant-unit treatment ranges from full market rent to a reduction. Some want a signed lease before closing, while others do not. Short-term rental units follow a different logic entirely, usually hosting history in place of a lease.
On the loan side, most purchases land at 75%-80% LTV, and credit typically starts at 620 with most programs wanting around 660. Strong leverage tiers want 700 or higher. Reserves commonly run about six months of PITIA and step up above $1,500,000. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. Eligibility depends on lender guidelines, credit, reserves, and property review.
Unit counts also matter for property type. Manufactured homes, log homes, and barndominiums are not offered in these programs.
What Should You Do Before You Apply?
- Build a rent roll with unit, tenant, rent, and lease end date.
- Gather every lease and proof of recent payments.
- Know the market rent for each unit type, not just your own rent.
- Decide which units are likely to be vacant at appraisal.
- Compare the result to the coverage level you are targeting.
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. For other products, see Lendmire’s piece How Much Rent an FHA Loan Counts on a 2-4 Unit.
Frequently Asked Questions
Does a vacant unit count as zero?
Generally no. Most programs count a vacant unit at the appraiser’s market rent. Some apply a reduction, and a few want a lease first. Treatment varies by lender, so confirm before you commit.
Do all units need to be leased to close?
Not always. Many programs accept vacant units on market rent. Others prefer leases in place. Leasing before you apply can strengthen the file where it is feasible.
Is pet or parking income counted?
Often it is scrutinized rather than counted. Base rent carries the file. Treat extras as optional upside unless a program says otherwise.
Is a fourplex treated differently from a duplex?
The method is the same. Rents are summed and divided by one PITIA. A fourplex spreads fixed costs across more units, which often helps coverage.
Why is my DSCR lower than my own math?
You may be subtracting expenses, using a lease above market, or using your own rent in place of the appraiser’s figure. On 2-4 units, the lender uses gross rent over PITIA with each unit capped by the lower-of rule.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
1. Fannie Mae Selling Guide B4-1.2-01
2. Fannie Mae/Freddie Mac Form 1025
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Income a DSCR Lender Counts on a Brand-New Airbnb · Section 8 Rent vs Market Rent for a DSCR Loan Investor · How Much a DSCR Lender Lends on a Rural Cabin Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.