The Quick Read: A DSCR refinance is a brand-new underwrite, and the appraisal does two jobs. It sets the property’s value, and it gives an opinion of market rent. Most programs then credit the lower of that market rent and your signed lease, and divide it by the full new payment to get your coverage number.
- The appraisal sets value (which drives leverage) and market rent (which drives coverage).
- A lease above market rent usually adds nothing to the ratio. A lease below market usually lowers it.
- More cash out means a bigger balance and a bigger payment, so the same rent covers less.
- Short-term rental income needs its own documentation path, because the standard rent form measures monthly leases.
- Passing the ratio is only one test. Credit, reserves, and property eligibility still apply.
What Is a DSCR Refinance, and Why Is It a New Underwrite?
A DSCR refinance replaces your current mortgage on a rental with a new loan. The new loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal paycheck is not the center of the file.
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DSCR stands for debt service coverage ratio. It compares the property’s rent to its monthly obligation. The obligation is PITIA: principal, interest, taxes, insurance, and any association dues. On an interest-only loan, the lender uses interest, taxes, insurance, and dues.
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.
Nothing from your old approval carries over. The old lender’s appraisal, the old rent, and the old payment all belong to the old loan. The new lender looks at the property as it stands today. That is why the appraisal matters so much.
The complete DSCR loans guide covers the basics if you want the full background.
How a DSCR Refinance Works With a New Appraisal, Step by Step
The process runs in a set order. Each step feeds the next, and a weak result early on limits what comes later.
1. Application and payoff. You choose a rate-and-term refinance (new loan, no meaningful cash out) or a cash-out refinance. The new loan must pay off the existing lien.
2. Appraisal order. The lender orders a standard appraisal with a rent analysis attached. You typically pay for it, but the lender controls the ordering.
3. The appraiser’s work. The appraiser inspects the property, picks comparable sales for value, and picks comparable rentals for rent.
4. Lease package. You supply the executed lease and any amendments. The lender may also want proof the tenant is paying, such as deposits or cancelled checks.
5. Rent selection. The lender decides which rent counts. More on this below.
6. The ratio. Rent used for lender review is divided by the full monthly payment on the new loan.
7. Sizing. The loan is capped by the value side and the payment side. Both are explained below.
8. The rest of the file. Credit, reserves, title, insurance, entity documents, and a business-purpose statement all still apply.
Across the wholesale network, most programs follow this basic order. The details differ from lender to lender. That is the main thing a broker sees that a single lender’s page will not show you.
What Does the New Appraisal Actually Do?
The appraisal does two jobs, and the second one surprises many first-time investors. It sets value. It also supplies a market-rent opinion.
Value comes first. Appraised value times the leverage cap gives the value-side limit on your loan. Leverage is measured as LTV, or loan-to-value: the loan balance as a share of the appraised value.
Rent comes second. For a single-family home or condo, the appraiser documents rent on Form 1007, the comparable rent schedule. The form is built around three rental comparables. It ends in a reconciled market-rent figure. It also adjusts rent concessions to the market, not to your property.
Here is a point worth stating plainly. DSCR loans are not agency loans, and agency rules do not govern them. DSCR files borrow the form because it is a convenient way to get a market-rent opinion. Each lender or investor sets its own guidelines for how to use it.
For two- to four-unit properties, the rent analysis sits inside a different report, the small residential income report. A separate 1007 is not used there. Properties with five or more units generally move toward commercial underwriting, which uses net operating income and an income-approach appraisal.
The appraiser gives an opinion of rent. The lender decides what counts as income. McKissock, an appraiser-education provider, says determining income is the lender’s scope, not the appraiser’s. It also confirms that the form covers one-unit properties, both houses and condos, and draws on comparable one-unit rentals.
Which Rent Counts: Your Lease or the Appraiser’s Number?
On most programs we place files with, the lender credits the lower of your executed lease and the appraiser’s market rent. Some programs use market rent alone when the property is vacant or has no lease. The rule is set at the program level, so it varies.
This catches many investors off guard. Your lease is not the final word. It is one of two rent data points, and the lower one usually wins.
| Lease situation | Rent typically used | What to document |
|---|---|---|
| Lease above market | Market rent | Lease plus payment history |
| Lease below market | Lease (some programs allow market) | Lease, comps, reason for low rent |
| Month-to-month or expired | Market rent, program-dependent | Payment history, renewal if available |
| Newly placed tenant | Lower of lease and market | Signed lease, deposit, first payment |
| Vacant | Market rent, program-dependent | Rent-ready condition, marketing plan |
A few of these deserve more detail.
Lease above market. The excess adds nothing. If your tenant pays more than comparable rentals, the lender still uses the lower number. A loan-review exhibit filed with the SEC shows a related pattern. A lender used a lease rent but lacked proof of payment, and the reviewer recalculated on market rent instead. An undocumented lease may not be counted at all.
Lease below market. This one costs real money. A long-term tenant on an old lease can drag coverage down for years. Some programs will consider market rent when the file shows compensating factors, but that is a lender-specific exception, not a general rule.
Vacant or month-to-month. Market rent carries the file. Whether a vacant property can refinance at all depends on the program and the property’s condition. Many lenders want it rent-ready.
Ownership. Properties held in an LLC are common on these files, subject to program terms. Expect entity documents on top of the rent paperwork.
How Does the Math Work? A Worked Example With Modeled Ratios
These ratios are modeled assumptions, not market data. They show how the pieces move.
Say you own a rental and want a rate-and-term refinance. The payment on the new loan is the same in every case below. Only the rent changes.
- Lease above market. Your lease would cover the new payment at about 1.35x. The appraiser’s market rent covers it at about 1.15x. The lender uses the lower figure, so coverage is 1.15x.
- Lease below market. Your lease covers it at about 1.05x. Market rent covers it at about 1.25x. Most programs use the lease, so coverage is 1.05x.
- Vacant. There is no lease. Market rent carries the file at about 1.15x, if the program allows a vacant refinance.
The first case shows why a higher lease does not raise the ratio. The second shows how an old low lease limits you.
Now change one input. Say you want cash out. The payment goes up, because the balance goes up. Using the same rent, coverage might fall from about 1.25x to about 1.05x as the balance grows by roughly a fifth. The rent did not change. The payment did.
What Limits the Loan Size? Two Ceilings
Your loan is the smaller of two limits.
The value-side limit is the leverage cap times the appraised value. On a cash-out refinance of a standard rental, most programs in our network top out around 75% LTV. For short-term rental collateral, the cash-out ceiling is lower, around 70%. On a rate-and-term refinance of an investment property, the ceiling can reach 85% on select programs, subject to credit and other guidelines.
The payment-side limit comes from the rent. Divide the rent used for lender review by the coverage floor, and you get the largest monthly payment the property can carry. The loan size that produces that payment is your cap.
The lower of the two controls. A low appraisal can hit both at once. Value comes in light, so the value limit shrinks. Rent comes in light, so the payment limit shrinks.
This is also why cash-out is the riskiest case. Every dollar pulled out raises the payment, which lowers coverage. Cash-out proceeds end up capped by the lowest of the leverage ceiling, rent coverage, and seasoning. Seasoning is the waiting period between buying or last financing a property and refinancing it. About six months is a common expectation on cash-out.
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 Happens at the Appraisal Visit?
The appraiser needs access to the unit. If a tenant lives there, you coordinate the visit and give notice. A cooperative tenant helps. A locked door can delay the report.
Hand over the basics: the signed lease, a list of improvements, and any records of recent work. Answer questions factually. Do not guess at rents or values. Appraisers work from comparables, and a made-up number does not help your file.
A recent appraisal from another transaction can sometimes be reused. That is unusual. Each lender decides, and many order a fresh one.
What If the Appraisal Comes In Low?
Do not panic, and do not skip the report. Read it first. Appraisals contain errors: wrong square footage, missing upgrades, mismatched comps. Then pick a path.
| Option | What it does | Trade-off |
|---|---|---|
| Request reconsideration of value | Asks for review with stronger comps | Not always granted |
| Take a smaller loan | Fits the new value and rent | More cash needed |
| Take less cash out | Lowers payment, raises coverage | Less cash in hand |
| Re-lease at market | Lifts the rent the lender can credit | Needs a signed lease |
| Try a different program | Different leverage or rent rules | New underwrite |
Sometimes value is fine, but rent comes in low. The loan can still shrink, because the payment-side limit tightens. Fixing a low lease before the appraisal helps. Renew or re-lease at a market rent with a real tenant and real payment history. Paper that does not match market comps will not move the number.
Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. A separate select-lender path, generally for borrowers who already own a primary residence, skips the ratio entirely. Both usually mean tighter terms, so they are fallbacks, not plans.
What Changes for Short-Term Rentals?
The standard rent form was not designed for nightly rentals. The 1007 documents monthly market rent from monthly-lease comparables. It says multiplying a nightly rate by 30 is not correct, and the form cannot estimate a nightly fee.
HousingWire argues that using the form on a short-term rental can produce an artificially low coverage ratio. It also notes that an upcoming appraisal-data update will retire legacy forms, including the 1007.
So plan a separate path. Programs that accept short-term rental income usually want platform statements or an addendum. In our network, expect a 640+ credit score and about 12 months of hosting history. The coverage floor on a refinance is 1.00. Purchase leverage tops out at 75%, while refinance runs around 70%. For the full comparison between history and fresh leases, see Short-Term History vs New Lease Income on a DSCR Refinance.
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.
What Else Does the Lender Look At?
A ratio alone does not approve a loan. Across the network, a few other items shape the file.
- Credit. A 620 floor exists in parts of the network. Most programs want around 660. A score of 700 or more opens the strongest leverage tiers.
- Reserves. These are liquid funds left after closing. They are commonly around 6 months of PITIA. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Loans above that size typically step up to about 9 months.
- Loan size. Standard programs run up to $3,000,000. Above $2,500,000, the network generally holds to 30-year fixed structures.
- Property type. Manufactured homes, log homes, and barndominiums are not offered through the network’s DSCR programs.
- Structure. The spine is the 30-year fixed. Extended terms and interest-only periods are available through select lenders. Adjustable structures exist for investors who want them.
A larger down payment or smaller balance lowers the payment and can lift coverage. It does not erase leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Finally, keep this straight. DSCR compares rent to PITIA only. Clearing 1.00 does not mean positive cash flow. Repairs, vacancy, management, utilities, and capex all sit outside the calculation.
Key Terms Defined
DSCR (debt service coverage ratio): The property’s rent used for lender review divided by its full monthly payment.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation on the loan.
Market rent: The appraiser’s opinion of what the property would rent for, based on comparable rentals.
In-place rent: The rent your tenant actually pays under the current lease.
LTV (loan-to-value): The loan balance as a percentage of the appraised value.
Seasoning: The waiting period a lender wants between a purchase or earlier financing and a new refinance.
Reconsideration of value: A formal request asking the appraiser or lender to review a value using additional comparables.
Frequently Asked Questions
Is a new appraisal always required on a DSCR refinance?
In most cases, yes. The appraisal supplies both the value and the market-rent opinion the lender needs. Reusing a prior appraisal is unusual and depends on each lender’s policy. Expect to budget for a fresh one.
Which rent does the lender use, the lease or the appraisal?
Most programs credit the lower of the two. If the property is vacant, month-to-month, or has no lease, the appraiser’s market rent typically carries the file. The rule is set program by program, so confirm it before you apply.
Do I need a signed lease to refinance?
Not always. A signed lease with payment history makes the file cleaner. Without one, many programs fall back on market rent from the appraisal. Vacant properties may be reviewed case by case, and many lenders want them rent-ready.
What if the appraisal is low?
Review the report for errors first, then consider reconsideration of value, a smaller loan, or less cash out. A low rent figure can shrink the loan even if the value is fine. Some investors re-lease at market to raise the rent the lender can credit.
Does the appraisal capture my Airbnb income?
No. The standard rent form documents monthly market rent only. Short-term rental income is documented separately, through platform statements or an addendum, depending on the program.
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. Lendmire is a broker arranging financing through select lenders in its wholesale network, with DSCR programs across 41 markets, including Washington, D.C. Qualification is subject to lender guidelines, and nothing here is a commitment to lend. An illustrative calculator on the site can give you a rough estimate before you apply.
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. Single-Family Comparable Rent Schedule (Form 1007), Fannie Mae
2. Form 1007 and short-term rental appraisals, McKissock Learning
3. Third-party loan review exhibit, SEC ABS-15G filing
4. Short-term rentals are breaking the appraisal playbook, HousingWire
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Family Lease vs Unrelated Tenant for a Portfolio DSCR Loan · How Much a No-Appraisal DSCR Program Lends on New Construction · Is It Worth Comparing Lenders on a DSCR Refinance of a Rental?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.