The Quick Read: Most DSCR programs count the lower of your signed lease and the appraiser’s market rent, and the appraiser’s number is the only one that counts when the unit is vacant. A low 1007 shrinks the rent in the coverage test, so the lender may resize the loan even when the property value is strong.
- The refinance appraisal does two jobs: value sets your maximum loan, and the 1007 rent sets your coverage.
- The smaller of those two limits is the one that binds.
- A lease above market rent earns no extra credit under lower-of.
- A lease below market rent pulls your coverage down.
- Clearing a 1.00 floor does not mean the property makes money.
A BRRRR investor spends months buying, rehabbing, and leasing a property. Then one line on one form decides how much cash comes back out. That line is the appraiser’s rent estimate. This guide walks through how it is built, how underwriters use it, and what you can do when it comes in short.
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Key Terms Defined
Form 1007: The Single-Family Comparable Rent Schedule, an appraiser-prepared attachment that estimates what the home would rent for on a monthly lease. Freddie Mac’s Form 1000 / Fannie Mae’s Form 1007 is the same document under two form numbers.
Form 1025: The small residential income property appraisal report, used for two- to four-unit properties. It gives a market rent opinion for each unit.
Market rent: The appraiser’s opinion of the monthly rent the unit would command on a standard lease.
PITIA: Principal, interest, taxes, insurance, and association dues. It is the full monthly housing obligation.
DSCR (debt service coverage ratio): Monthly rent used for lender review divided by PITIA. A result of 1.00 means rent equals the payment.
BRRRR: Buy, rehab, rent, refinance, repeat. The refinance step is where the 1007 matters.
Why Does the 1007 Matter More on a BRRRR Refinance?
It matters more because a BRRRR refinance usually asks for a bigger loan than the property carried before, and the same appraisal report sets both your value and your rent. One report creates two exposures.
On a rental purchase, a low rent number might cost you a pricing tier. On a BRRRR, you often need the new loan to repay a bridge or hard money balance. A larger payoff raises the payment against the same rent. That drops coverage. If the appraiser’s rent also lands low, both sides of the ratio move the wrong way.
The two tests run side by side:
- Value test: Leverage is capped as a percentage of appraised value. Most cash-out refinance files across the network top out around 75% LTV. LTV (loan-to-value) is the loan balance divided by the appraised value.
- Coverage test: Rent used for lender review divided by PITIA must clear the program’s floor. Select programs start at 1.00, and stronger ratios open better pricing and leverage. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
You can pass one and fail the other. Strong value with weak rent shrinks the loan through the coverage test. Whichever limit is smaller governs.
How Does the Appraiser Build the Rent Number?
The appraiser compares your property with a handful of rental comparables and arrives at a monthly market rent. The grid on the form typically sets the subject against three leased comparables. It looks at location, design, age and condition, room count, and gross living area, with utility adjustments. The form’s own instructions say adjustments should be made only for items of significant difference. A realistic walkthrough of that grid is in RealVals’ Form 1007 explainer, which also notes that the grid is a summary and the appraiser’s comments explain the final conclusion.
The final line of the form is the monthly market rent estimate. The comments section covers the range of rents, a vacancy estimate, and the trend in rents. For two- to four-unit properties, the appraiser uses the 1025 and reconciles a market rent opinion for each unit, per Fannie Mae’s Form 1025.
These are agency forms, but DSCR loans are not agency loans. A DSCR lender ordering a 1007 is a program choice, not a federal rule. For comparison, Fannie Mae’s selling guide requires a 1007 on a conventional one-unit investment property only when rental income is used to qualify. Different loan type, same form.
Why do 1007s come in low? Usually the comps. Few comparables, comps far apart, or comps with a different use or a lower finish level can drag the number down. A freshly rehabbed unit compared against tired rentals is a common version of this. Appraisers also lag behind asking rents because they lean on leased data, not listings.
How Does the Underwriter Read the 1007 Against Your Lease?
Most DSCR channels count the lower of the signed lease and the 1007 market rent. If no lease exists, the 1007 stands alone. This is a practitioner convention across the programs we place files with, and it is not universal. Some lenders use only the 1007. Others allow a variance when a current lease exists. A few credit the lease up to a percentage cap over the 1007. Ask which method applies before the appraisal is ordered.
| Lease position | Rent counted (typical) | Effect | What to bring |
|---|---|---|---|
| Lease above 1007 | The 1007 figure | Surplus ignored | Market comps if you want to dispute |
| Lease below 1007 | The lease | Coverage drops | Renewal at market rent if the lease rent is lower |
| Vacant after rehab | The 1007 alone | Appraiser opinion governs | Strong rent comps before ordering |
| Month-to-month | Usually treated as lease or 1007, by program | Varies | Written lease terms |
| 2–4 units | Per-unit figures from the 1025 | Sum of unit rents | Unit-level comps |
A lease below market is the sneaky case. If you signed a modest lease to get a tenant in fast during rehab, that lease binds under lower-of. Renewing at documented market rent helps only if the lease was the lower number. If the appraisal was lower, the appraisal still binds.
Conventional lending has its own version of this logic: Fannie Mae’s rental income guidance has the lender compare lease rents with market rents and use the lesser when the market does not support the lease. DSCR is simpler. It is rent divided by the payment, with no haircut factor layered on top. Do not mix the two methods.
How Does a Low Rent Shrink the Loan?
It shrinks the loan by more than the rent gap itself, because taxes and insurance do not fall when rent falls. Here is the logic with no dollar figures.
Say the rent comes in about 10% below what you modeled. Your payment obligation is unchanged at the same loan size. Coverage falls by 10% of itself. If you modeled around 1.15x, you are now near 1.03x. A bit lower and you are under a 1.00 floor.
To get coverage back, the lender cuts the loan. A smaller loan lowers principal and interest, but taxes, insurance, and any HOA dues stay fixed. So the loan must shrink by more than 10% to restore the same ratio, because only part of the payment moves with the loan size. That surprises many first-time BRRRR investors.
Now stack the value test. Suppose appraised value also lands a bit under your plan. The LTV cap, around 75% on a cash-out, trims the loan from that direction. The lender then runs both numbers and uses the smaller loan. Seeing both caps side by side is the only way to know which one is really holding you back.
Here is the pattern across three modeled cases:
- Rent miss only: Value supports your loan, but coverage forces a smaller one.
- Value miss only: Rent clears, but the LTV cap trims the loan.
- Both miss: The smaller of the two limits binds, and your cash-out is sharply lower. On a BRRRR with a bridge to repay, this can leave you cash-trapped.
Diagnose First: Was It Value, Rent, or Both?
Get the complete appraisal report, including the rent schedule and addenda, then work out which test failed. The fix depends on the failure.
| What failed | What it means | First response |
|---|---|---|
| Rent only | Coverage fails at the requested loan | Check comps for errors; resize the loan |
| Value only | LTV cap trims the loan | Review value comps; consider a payoff-only refinance |
| Both | Smaller limit binds | Resize, then decide whether to dispute |
Recalculate everything after a miss: loan amount, cash to close, reserves, payment, and coverage. Reserves vary by lender, leverage, loan size, and transaction type. They are commonly around 6 months of PITIA, and loans above $1,500,000 typically step up to about 9 months.
How Do You Pre-Audit the Report?
Read the 1007 grid like an adversary. Check these items:
- Comp age: Are the leases recent, or stale?
- Finish level: Are the comps comparable to your rehabbed condition, or lower-finish units?
- Unit mix: Same bedroom and bath count? Similar square footage?
- Use: Any comp that is an office conversion or different use?
- Adjustments: Are they reasonable, and consistent with the form’s instruction to adjust only for significant differences?
- Missed features: A missed bathroom or finished space changes the room count.
Factual errors are the strongest basis for a challenge. “It lags asking rents” is not.
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.
The Fix Ladder, Lightest to Heaviest
| Fix | What it changes | When it applies |
|---|---|---|
| Check for factual errors | Corrects the report | Any miss |
| Trim the loan (less cash-out) | Lowers payment against same rent | Coverage failure |
| Renew lease at market | Lifts lease-based rent | Lease was the lower number |
| Reconsideration of value | Asks appraiser to weigh new data | Documented errors or better comps |
| Second opinion or new appraisal | Fresh rent conclusion | Channel allows it; cost varies |
| Wait and reappraise | Lets the market or lease evolve | Only when carrying costs allow |
| Switch lenders in the network | Different rent method | Lender uses 1007-only and another does not |
Select lenders in the network offer different rent methods. Some allow a variance for a current lease, and some allow an appraisal transfer so a new appraisal is not needed. This is one advantage of working through a broker: the same file can be placed with a lender whose rent method fits it better. Programs change and every file is underwritten individually, so nothing here is a commitment to lend.
How Do You Dispute a Low Rent Figure?
You send a written request through the lender, not to the appraiser directly. The model for this process is the reconsideration of value, a written request asking the appraiser to consider additional, appropriate property information, including comparable properties, or to correct errors. The interagency guidance describes that process. It applies to regulated institutions in 1-to-4-family lending, so a non-bank DSCR channel is not bound by it. Treat it as a model, not a right.
Build a rent evidence packet:
- Closed leases on comparable units, not asking prices and not sales.
- Unit details: bedrooms, baths, square footage, finish level.
- A dated list of improvements with the rehab scope itemized.
- Your signed lease and deposit documentation.
What wins: documented errors and better leased comps. What loses: asking rents, an above-market lease, and direct contact with the appraiser. Be realistic. A dispute can fail even with supporting comps, particularly on a channel that only accepts the 1007 figure. In that case the move is to change the loan size or the channel, not to keep arguing.
Before the Appraisal: The BRRRR Pre-Flight
Model on the rent the appraiser is likely to support, not the rent you hope for. Then run the coverage test at the new loan size, because rent that worked against your old balance can fail against a bigger payoff.
- Pull your own monthly-lease comps for the same unit type and area.
- Hand the appraiser the lease, the improvement list, and your comps.
- Confirm your lease is documented, with deposits.
- Ask your loan officer which rent basis applies before the appraisal is ordered.
- Check seasoning. About 6 months is the common expectation on cash-out refinances.
If you are curious how a lender reads the rehab side of the file, see Lendmire’s piece How a DSCR Lender Reads a Stabilizing BRRRR Rehab Batch. The complete picture of program mechanics is in the complete DSCR loans guide.
When Should You Stop Fighting and Pivot?
Stop when the evidence is spent. If you have corrected every factual error and submitted leased comps, and the number holds, further arguing costs carrying time on a bridge. At that point choose one of three routes: take the smaller loan, do a payoff-only refinance, or move the file to a lender whose rent method fits. For borrowers on a short bridge, run the 1007 downside before the bridge closes, not after.
Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. It is a separate path from the 1.00 programs and not a drop in the same floor. Expect less leverage if you go that route.
What About Short-Term Rentals and Special Cases?
The 1007 is a monthly-lease form. Fannie Mae’s appraiser update states the form was not designed for short-term rentals, that appraisers must use monthly-lease comparables, and that multiplying a nightly rate by 30 is incorrect. Short-term rental income on DSCR files is therefore documented under program rules instead, and those programs run lower leverage than long-term rentals: purchases to 75% LTV, refinances around 70%, and cash-out at 70%, with 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. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Property types matter too. Manufactured homes, log homes, and barndominiums are not offered in the network’s DSCR programs, so no rent figure rescues them.
Does Clearing 1.00 Mean the Property Makes Money?
No. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside the calculation. A property at 1.05x can still lose money once real operating costs hit. A flood premium or HOA on a thin ratio makes it worse. The strongest files clear both tests: enough equity and enough rental coverage.
Frequently Asked Questions
What if my lease is above the 1007?
Under lower-of, the lender counts the 1007 figure and ignores the surplus. Some programs allow a variance or cap the lease at a percentage of market rent. Ask which method your lender uses before the appraisal.
What if my lease is below the 1007?
The lease usually binds, so coverage drops. Renewing at documented market rent can help, but only when the lease was the lower number. If the appraisal was the lower figure, it still governs.
What happens if the unit is vacant after rehab?
The 1007 stands alone as the rent figure. That makes the quality of the rent comps even more important, so pull your own leased comps before the appraisal is ordered.
Can I talk to the appraiser directly about the rent?
Not for a dispute. Requests go through the lender, with documented errors or better leased comps. Direct contact to argue the number does not move it and can create problems for the file.
Who pays if a second appraisal is needed or the deal fails?
It depends on the lender and channel. Whether a second appraisal is allowed and who pays are lender-specific, so ask before you order anything. Appraisal fees on a deal that does not proceed are generally not refundable.
Next Step
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. Across the network, files qualify primarily on property-level rental income covering the payment, subject to lender guidelines. DSCR investor loan programs are available in 41 markets, including Washington, D.C.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s tax returns, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Freddie Mac Form 1000 / Fannie Mae Form 1007
2. RealVals’ Form 1007 explainer
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 DSCR Lender Reads a Rental Held Without an LLC or Business License · Can You Do a DSCR Cash-Out Refinance on a Multifamily Building? · How a Portfolio DSCR Lender Sizes a Loan Without Tax Returns
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.