The Quick Read: Usually yes, as long as the tenant is current going forward under a signed plan and the bank deposits prove the rent is actually being paid. A tenant’s back balance is not your debt to the lender. It matters only because it affects the evidence that the rent is real and collected.
- The plan must be in writing, signed, and consistent with the lease.
- Bank deposits should match the tenant ledger, month after month.
- A tenant who has stopped paying or faces an eviction filing is usually treated like a vacancy.
- Cash-out on most network files tops out around 75% LTV on a standard rental, with about 6 months of seasoning.
- The ratio is tested on the new, larger payment, so a bigger draw means thinner coverage.
One note on terms. “Repayment plan” here means an agreement between you and your tenant to catch up unpaid rent. It is not a loan-servicer workout on your own mortgage.
DSCR Cash-Out Calculator
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How Does a Lender Look at a Tenant Who Owes Back Rent?
The lender looks at the rent the property can prove, not at the tenant’s debt. A DSCR loan (debt service coverage ratio, meaning monthly rent divided by the full monthly housing payment) qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal income is not the main test.
That is why a repayment plan is a documentation problem more than a credit problem. Across our wholesale network, underwriters ask a simple question: is this rent being paid, and can you show it?
Here is the short list of what they weigh:
- Is the tenant current going forward under a signed plan?
- Do deposits show regular receipts?
- Do the lease and the deposits tell the same story?
If all three line up, a plan is a footnote. If they conflict, the file stalls.
How the Rent Figure Gets Picked
The appraiser sets market rent, and the lender then chooses one number to use. The appraiser completes a rent schedule, and Fannie Mae’s Appraiser Update describes Form 1007 as the documentation of estimated monthly market rent on a single-family investment property. Freddie Mac’s version of the form is built from comparable rentals and attaches to the appraisal. For 2-4 unit buildings, a different form, 1025, plays the same role.
Those are agency forms. DSCR loans are not agency products, so agency rules do not govern them. Non-QM lenders simply borrow the forms as a rent document.
On a leased property, most programs we place files with count the lower of the signed lease rent and the appraiser’s market rent. Above-market rent adds nothing. If the tenant’s payments do not evidence the lease rent, an underwriter may fall back to market rent or decline to treat the unit as stabilized. Lenders differ here, and every file is underwritten individually.
What Proof of Collection Looks Like
A lease shows scheduled rent. Bank deposits show collected rent. A rent roll alone proves nothing about collection.
For a repayment plan, the strongest files usually carry:
- the executed lease;
- the signed payment-plan agreement;
- a tenant ledger or aging report;
- at least a couple of months of deposits that match the ledger, and sometimes longer;
- a short letter explaining why the balance built up and how it is being repaid.
Exact requirements vary by lender. Some want only a couple of statements. A few want a longer trail. No fixed number of on-time months applies across the network, so treat any single figure you read online as one lender’s preference.
Catch-up payments are the other trap. The extra money a tenant pays toward arrears is not the ongoing rent. Underwriters count the regular monthly rent, not the catch-up.
Tenant Situations, Side by Side
The table below shows how the common situations tend to play out. This is practitioner convention, not a codified rule, and lenders differ.
| Tenant situation | What the lender relies on | Likely treatment |
|---|---|---|
| Paying on time | Lease plus deposits | Counted at lower of lease or market rent |
| Late but current | Documented pattern | Workable if deposits are regular |
| Behind, signed plan, proven receipts | Plan, ledger, deposits | Often still counted |
| Chronic arrears, no plan | Little evidence | Rent questioned; cure or wait |
| Stopped paying, still in possession | Market rent only | Likely vacancy-style treatment |
| Eviction filed or lease ended | Almost nothing | Likely vacancy treatment |
A property with a plan sits in the middle of that table. It is neither clean nor disqualified. Your documentation decides which way it falls.
Edge Cases That Change the Answer
2-4 unit buildings. Each unit is judged on its own lease and rent roll. One delinquent door can pull down the whole building’s coverage, so a fourplex with one problem tenant may test weaker than the other three suggest.
Portfolio or blanket loans. One overstated rent roll triggers re-checking of every line. A single unit shown as paying when deposits say otherwise can sour the entire file.
Refinance versus purchase. A refinance generally expects a leased property or an operating history. A purchase may allow a vacant but rent-ready property. That difference is exactly why a delinquent tenant becomes a live issue on a cash-out.
Subsidized or related-party tenants. These typically default to market rent or get closer review.
Forgiven balances. If you forgive part of the arrears in the plan, record it clearly in the agreement. Tax treatment varies; consult a qualified professional.
What the Numbers Look Like on Your Side
Rent coverage often limits cash-out before leverage does. Here is how the limits stack up on a standard rental across the select lenders in our network:
- Cash-out LTV tops out around 75% on a standard rental, with about 6 months of seasoning measured from title recording.
- Coverage of 1.00 is where select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
- Credit starts at a 620 floor in parts of the network. Most programs want around 660, and 700+ opens the strongest tiers.
- Reserves commonly run about 6 months of PITIA (principal, interest, taxes, insurance, and any HOA dues), stepping up to about 9 months above $1,500,000.
- Standard programs reach up to $3,000,000.
Run a worked picture. Say you own a fourplex where three units pay on time and one tenant is on a plan. If the lender counts all four leases, coverage might clear 1.25x at a modest draw. If the underwriter drops the plan unit to market rent or to zero, the same draw may test below 1.00. Same building, same loan request, very different file.
Drawing more cash also raises the new payment, so the ratio falls. Equity available depends on rent used for lender review, PITIA, reserves, and the 75% ceiling. It is not a guaranteed figure, and the calculator on this site is an illustrative estimate only.
One warning worth repeating. Clearing 1.00 is not the same as positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside it. If you push the draw until the payment nearly equals rent, a second missed month from the same tenant can hurt.
A practitioner observation from this kind of file: the deals that stall are rarely the ones with a late tenant. They are the ones where the lease says one thing and the deposits say another, and the investor learns that during underwriting instead of before it.
Refinance Now, Fix First, or Wait?
This is a genuine judgment call, and the right answer depends on how clean your paper trail is today.
Refinance now if the plan is signed, the tenant is current going forward, and the deposits already match the ledger. You may still want a smaller draw to keep a cushion.
Fix first if the plan is verbal, the ledger is messy, or the lease has lapsed. Put the plan in writing, re-sign the lease if needed, and let a few clean months of deposits build.
Wait or carve out the unit if the tenant has stopped paying. Curing the situation or re-leasing at market gives the underwriter something solid to count.
Waiting costs you time. Rushing costs you a lower rent figure and a smaller loan. Neither is free. Compare the extra equity you would unlock against the months of clean deposits you would sacrifice, and choose the trade you can live with.
Whatever you choose, present the rent roll honestly. Never show a unit as paying when the statements show otherwise. It will surface, and it damages the whole file.
Common Misconceptions
“The lease is the income.” The lease shows what rent should be. Lenders also need proof it is being paid.
“A late tenant means a late loan.” They are separate. Tenant arrears are a collection problem, not a default on your mortgage. The risk is indirect: missed rent can strain your cash flow and make your own payment harder to cover.
“A DSCR loan means no personal documents.” It is reviewed on rental income, but lenders may still ask about your own housing and mortgage history, and some request personal bank statements.
“The appraiser’s rent will rescue me.” On a leased property, the lender generally credits the lower of lease and market rent.
“Form 1007 is a DSCR form.” It is an agency form that non-QM lenders borrow. Fannie Mae notes it is only required on agency loans when rental income is used to qualify.
Key Terms Defined
DSCR: The monthly rent divided by the full monthly housing payment on the property.
PITIA: Principal, interest, taxes, insurance, and any HOA dues, which together form the full payment.
Seasoning: The waiting period a lender wants after you buy before you can cash out, about 6 months on most network files.
Arrears: Rent the tenant owes but has not yet paid.
Market rent: The rent an appraiser estimates the property would earn from comparable rentals.
Cash-out refinance: A new, larger loan that pays off the old one and returns the difference as cash.
For the full framework, see Lendmire’s complete DSCR loans guide. For the related question of how a tenant in place shapes coverage, see Lendmire’s piece How a Tenant in Place Affects DSCR on a Cash-Out Refinance.
Frequently Asked Questions
Will a repayment plan stop my cash-out refinance?
Not by itself. A signed plan with a tenant who is current going forward and deposits that match the ledger is often workable. A plan with missed payments or no deposit trail is the version that causes trouble.
Does my tenant’s late rent hurt my credit?
No. Tenant arrears do not appear on your credit. They matter only through the rent evidence the lender sees. The indirect risk is that missed rent makes it harder to pay your own mortgage on time, and that history can matter.
Can I use the lease rent if the tenant is behind?
Sometimes. If the plan is signed and receipts are proven, the unit is often still counted. If not, the underwriter may use appraiser market rent or treat the unit like a vacancy.
What if there is an eviction filing?
Expect vacancy-style treatment, meaning full payment against little or no counted rent. Curing the issue or re-leasing first usually gives a stronger file.
Do the catch-up payments count as income?
No. Underwriters count the regular monthly rent. The extra paid toward arrears is a one-time recovery, not ongoing income.
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 across 41 markets, including Washington, D.C. All terms are subject to lender guidelines and are not a commitment to lend.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
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 Appraiser Update, June 2024
2. Freddie Mac Form 1000 / Fannie Mae Form 1007
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: How to Compare Selling a Rental With a DSCR Cash-Out Refinance · How to Make a DSCR Cash-Out Cover Your Hard Money Note and Rehab Cards · How to Recoup Cash on an All-Cash Purchase After a Low DSCR Appraisal
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.