The Quick Read: A DSCR lender divides the monthly rent it is willing to count by the full monthly housing payment: principal, interest, taxes, insurance, and association dues. The rent it counts is usually the lower of the signed lease and the appraiser’s market-rent opinion, subject to lender guidelines.
- The top of the fraction is rent used for lender review. The bottom is the full payment, known as PITIA.
- A lease above market rent usually earns nothing extra. A lease below market usually becomes the ceiling.
- A vacant property is typically carried by market rent alone.
- Clearing 1.00 does not mean the property cash flows. Repairs, vacancy, management, and utilities sit outside the test.
- Treatment varies by lender and program, so the same property can read differently across the network.
Most new investors assume the lender simply looks at what the tenant pays. That is close, but not quite right. Here is how the count actually works, step by step.
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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.
What Does the Lender Put on Each Side of the Fraction?
The top is qualifying monthly rent. The bottom is PITIA, which stands for principal, interest, taxes, insurance, and association dues. The result is the DSCR, the debt service coverage ratio. Rent equal to the payment reads 1.00. Rent above the payment reads higher. Rent below it reads lower.
This is the investor-loan ratio. Banks and commercial lenders use a different formula, net operating income divided by debt service. A DSCR investor loan uses gross rent over PITIA, with no operating expenses subtracted. If you see “DSCR” in a commercial listing, check which version it means.
Nothing in this ratio looks at your traditional personal-income documentation. Credit, leverage, reserves, and property type are still reviewed. For the full picture of how these loans work, see Lendmire’s complete DSCR loans guide.
Key Terms Defined
DSCR: the ratio of qualifying monthly rent to the full monthly payment on the loan.
PITIA: principal, interest, property taxes, insurance, and association dues, added into one monthly obligation.
Market rent: the monthly rent an appraiser estimates the property would bring on the open market.
Rent schedule: the appraisal form where the appraiser documents that market-rent opinion.
Rent used for lender review: the single rent figure the lender chooses to put in the numerator.
Seasoning: the waiting period a lender wants between events, such as owning a property before a cash-out refinance.
Which Rent Counts: the Lease or the Appraisal?
On most programs we place files with, the lender counts the lower of the signed lease and the appraiser’s market rent. Some programs treat this differently, so the lender’s own guidelines control. The lower-of approach is the conservative read, and it explains most surprises borrowers hit.
The appraiser documents market rent on a rent schedule. Fannie Mae’s Form 1007 is the single-family comparable rent schedule, and it is the form many DSCR appraisals borrow for one-unit homes. Fannie Mae describes the appraiser as estimating the monthly market rent of the subject. Two-to-four-unit buildings use a related form. DSCR programs are lender-set, so Fannie Mae’s rules do not govern them. Only the form names carry over.
Why does the lender look at the lower number? Think like the person holding the loan. A lease can end. A tenant can leave. The appraiser’s number says what the unit should rent for to the next tenant. If the lease sits above that, the lender will not underwrite to a rent it cannot count on replacing.
| Situation | Rent counted | Effect on the ratio |
|---|---|---|
| Lease above market rent | Usually market rent | No lift from the extra rent |
| Lease equal to market rent | Either figure | Ratio reads as expected |
| Lease below market rent | Usually the lease | Ratio is held down |
| No lease, vacant | Market rent | Appraisal carries the file |
Our piece How a DSCR Lender Counts a Below-Market Lease Against Market Rent goes deeper on the third row. If your lease runs above market, some lenders may ask for proof the rent is actually being collected before they credit it. That usually means bank deposits or payment records, depending on the program.
One Property, Three Versions
Take a single rental with one fixed monthly payment. Change only the rent the lender counts, and the ratio moves.
| Version | Lender counts | Result |
|---|---|---|
| A: lease well above market | Market rent | Around 1.1x |
| B: lease matches market | Lease or market | Around 1.1x |
| C: lease well below market | The lease | Around 0.9x |
These are modeled ratios, not market data. In version A, the high lease is ignored and the appraiser’s number sets the ratio. In version C, a long-term tenant on a friendly rent drags coverage under 1.00 even though the building would rent for more on the open market.
Version C is where investors often get stuck. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. Alternatively, a larger down payment shrinks the loan and the payment, which can lift the ratio. Another option is to wait for the lease to roll to market and apply then. All of these are levers a lender would review, not promises.
When There Is No Lease
A vacant property or a purchase with no tenant in place is usually carried by the appraiser’s market rent alone. A light-rehab vacant home can often go this way. A heavy rehab may need separate short-term financing first, since the property has to be rentable at appraisal.
Month-to-month tenants, related-party leases, and rent concessions are treated differently from program to program. Many lenders review them more closely or fall back to market rent. Rent paid by a relative at a discount is a common example. When the lease looks unusual, ask the lender up front which figure it will use.
On a purchase, ask one question before you commit: what happens if the appraisal’s rent comes back lower than you expected? The answer might be a lower ratio, a lower leverage tier, or a need for more cash down. That is worth knowing before you remove contingencies.
What Counts as the Monthly Payment?
The denominator is the full monthly obligation, not just the loan payment. Taxes and insurance are estimated and added in, and so are association dues. That means the ratio can move even when rent does not. An insurance renewal, a tax reassessment after purchase, or a higher HOA bill raises PITIA and lowers coverage.
The appraisal can also move the denominator. If value comes in low, the loan amount can change, and so does the principal and interest piece.
Loan structure matters too. Our core product is the 30-year fixed. Extended terms such as 40-year and interest-only periods are available through select lenders in the network. They lower the payment, and some lenders test coverage against the interest-only payment plus taxes, insurance, and dues. Others test against a fully amortizing payment. Ask which one your lender uses.
Multi-unit buildings work the same way. A two-to-four-unit property is one rental. All unit rents go against one building payment. A partially vacant fourplex typically counts the occupied units at the lower-of figure and the empty units at market rent, though treatment varies.
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.
Short-Term Rentals Break the Pattern
The rent schedule is a monthly-lease form. Fannie Mae’s appraiser update states that the 1007 was not designed for appraising single-family properties used as short-term rentals. It also says multiplying a nightly fee by 30 would be incorrect. Class Valuation, an appraisal-technology firm, argues that forcing the form onto STR income often produces an artificially low DSCR.
So short-term rental files lean on booking history or platform data instead. Lender treatment varies. On our network, STR purchases go up to 75% LTV, with a 640+ score expected, about 12 months of hosting history, and a 1.00 coverage floor. STR refinances sit around 70% LTV with a 1.00 floor. STR cash-out tops out at 70% LTV. 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. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
When the Numbers Come Up Short
A low ratio is a structure problem before it is a dead end. Levers that may help, depending on the lender:
- More down payment. A smaller loan means a smaller payment, which can lift the ratio. It never erases leverage caps, credit floors, or reserve rules.
- A different structure. Interest-only or an extended term lowers the payment on select programs.
- A sub-1.00 path. Available through select lenders, with leverage and terms adjusted.
- A rent re-review. If the appraiser’s number looks off, the file can sometimes be reviewed again with better comps.
- Waiting for the lease. A below-market lease that rolls to market can change the answer.
The strongest files clear two tests: enough equity and enough rental coverage.
Clearing 1.00 Is Not Positive Cash Flow
This is the misunderstanding that costs investors the most. The ratio ignores vacancy, repairs, management fees, utilities, and capital expenses. Lender math is gross rent over the payment. Owner math is what lands in your account after everything else.
A property that reads 1.10x can still lose money in a year with a vacancy and a roof repair. Run your own version with those costs in. If it only works on the lender’s formula, treat the thin margin as a risk.
Typical program ranges, subject to lender guidelines, give context. Purchase leverage commonly runs 75%-80% LTV on an investment property. Select programs reach 85% with roughly a 700+ score. Cash-out refinance tops out around 75% LTV, with about 6 months of seasoning common. Credit floors start at 620 in parts of the network, with most programs wanting around 660. Reserves commonly run about 6 months of PITIA and can step up for larger loans. Manufactured homes, log homes, and barndominiums are not offered.
Frequently Asked Questions
Do they use my lease or the appraisal?
Usually whichever is lower, on most programs. If the property is vacant, the appraiser’s market rent carries the file. Some programs treat a lease differently, so the specific lender’s guidelines decide.
Is the rent gross or net?
Gross. The lender does not subtract vacancy, repairs, management, or capital expenses. That is why a passing ratio does not mean the property earns money after costs.
What if my lease is higher than market?
The extra rent typically earns nothing. The lender counts market rent instead, and may ask for proof of actual collection before crediting a lease that runs above it.
How are duplex rents counted?
Two-to-four-unit properties are one rental. Rents from all units are added together and divided by the single building payment. Vacant units are generally counted at market rent.
Does my personal income matter?
The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Credit score, leverage, reserves, and property type are still reviewed.
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. The ratio you clear at closing is only the beginning, since the next insurance renewal can move it.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
1. Fannie Mae Form 1007, Single-Family Comparable Rent Schedule
2. Fannie Mae Appraiser Update
3. Class Valuation, Appraisal Form 1007 and Short-Term Rentals
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does a DSCR Loan Need a 1007 Rent Schedule? · How a Portfolio DSCR Lender Sizes a Loan Without Tax Returns · How a DSCR Lender Counts Rental Income From a Signed Lease
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.