The Quick Read: A lender underwrites this loan by treating the appraiser’s market rent, taken from the rent schedule attached to the appraisal, as the rental income in the coverage test, then sizing the cash-out under both a value limit and a rent limit and letting the smaller limit control. The appraisal does two jobs here. It sets the property’s value and it sets the rent the lender counts.
- The rent study replaces the lease as the income figure when no usable lease exists.
- Cash-out on most programs in the network tops out around 75% LTV on a standard rental, with about 6 months of ownership expected.
- A low rent study shrinks proceeds by more than the rent shortfall, even when equity is plentiful.
- Clearing 1.00 coverage is not the same as positive cash flow, and program rules vary by lender and file.
Key Terms Defined
Rent study: the rent schedule an appraiser attaches to the appraisal to estimate what the property would rent for in the open market.
Form 1007 and Form 1025: the appraisal forms for the rent schedule, with 1007 used for a one-unit property and 1025 for a two-to-four-unit property.
Rent used for lender review: the monthly rent figure the lender places in the numerator of the coverage ratio.
PITIA: the full monthly housing obligation, meaning principal, interest, taxes, insurance, and any association dues.
DSCR (debt service coverage ratio): rent used for lender review divided by PITIA, which measures whether the property’s income covers its own payment.
Value ceiling and coverage ceiling: the two caps on the new loan. One comes from appraised value times the maximum LTV. The other comes from the largest payment the rent can support at the program’s coverage floor.
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Why a Rent Study Can Stand In for a Lease
A rent study can replace a lease because DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines. What matters is credible rent, not a particular piece of paper. When a property is vacant, between tenants, on a lapsed lease, or on month-to-month terms, the appraiser’s market rent is the best available evidence of that income.
The form itself is built for this job. Fannie Mae’s copy of Form 1007 describes it as the way a lender obtains market rent for a single-family investment property from the appraiser. Freddie Mac’s version, Form 1000, says the appraiser prepares it as an attachment to the appraisal. The form uses three comparable rentals and adjusts only for significant differences. It ends in a reconciled monthly market rent.
DSCR programs are business-purpose investor loans, so they are reviewed differently from a standard owner-occupied mortgage. They borrow the form names, not the rulebook behind those names. Whether a lease is required, and which rent wins when both exist, is set by each lender’s program. Across the wholesale lenders Lendmire works with, a refinance is treated a bit more strictly than a purchase. Some programs on a refinance still prefer to see a lease or deposit history, so confirm the rent basis before the appraisal is ordered.
How Lenders Underwrite a Rent-Study Cash-Out, Step by Step
The sequence below is how most files move. Details shift by program.
1. Pre-screen the file. The broker checks credit, ownership seasoning, property type, and the owner’s rough equity. Most programs want around 660 or higher. A 620 floor exists in parts of the network, and 700 or higher opens the strongest leverage tiers.
2. Order the appraisal with the rent schedule. A cash-out is appraisal-driven. The report supplies an as-is value and a market rent. Form 1007 covers one unit and Form 1025 covers two to four units.
3. The appraiser reconciles the market rent. The comps are monthly leases of similar homes nearby. The appraiser adjusts them to the subject and states a final figure.
4. The underwriter selects the rent used for lender review. With no lease, the market rent is the figure. With a lease, many programs use the lower of the lease and the market rent. Some use the study only. Others use the lease and turn to the study just for vacant units.
5. The ratio is tested on the new payment. The denominator is PITIA on the new, larger loan. Taxes, insurance, and association dues are estimated for the refinanced file. An interest-only period, available through select lenders, changes that payment and so changes the ratio.
6. The loan is sized under two ceilings. The value ceiling is appraised value times 75% on a standard rental cash-out. The coverage ceiling is the largest loan whose payment the rent supports at the program’s floor. The smaller of the two controls.
7. Cash to the borrower is what remains. The new loan minus the old payoff and closing costs is the cash-out. Reserves and seasoning conditions must also clear.
Coverage of 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Neither is the standard for every program, and stronger ratios generally open better pricing and leverage.
How the Appraiser Builds the Number (and How It Gets Reviewed)
The appraiser starts with comparable rentals that are similar in size, condition, and location. Each comp is adjusted for real differences such as bedroom count, condition, or amenities. The form’s comment area covers the range of rents, an estimate of vacancy, and the trend of rents. Concessions are adjusted to the market, not to the subject.
Condition matters more than most investors expect. A rent-ready unit is compared against rent-ready comps. A unit with deferred repairs may be compared against lower rents, or may draw conditions before the loan proceeds.
Comps must also be true monthly rentals.
After the report arrives, the lender’s underwriter reads it for reasonableness. Underwriters look at whether the comps are close in size and location, whether the adjustments make sense, and whether the final figure sits inside the range of comps. Many programs also order a desktop review of the appraisal as a second check. A rent figure that looks stretched draws questions, and the fix is usually better comps, not a louder argument.
Which Rent Counts in Each Property Situation
The table shows how rent is usually selected. It reflects common practice across programs, not a rule for every lender.
| Property situation | Rent usually used | What the file needs |
|---|---|---|
| Vacant, rent-ready | Market rent from study | Rent-ready condition, program allows it |
| Between tenants | Market rent from study | Proof of prior tenancy may help |
| Lapsed or month-to-month | Market rent, sometimes lower-of | Expired lease and deposit history |
| New lease at market | Lease or study, similar | Signed lease, first payment proof |
| Lease above market | Often capped at study | Program’s rent basis confirmed |
| Lease below market | Often the lease (lower-of) | Renewal at market before appraisal |
| Short-term rental | Program-specific method | Hosting history and income records |
Related-party tenants usually draw closer review. Rent-subsidy units tend to be judged on the contract rent. Treat both as program-specific questions to ask before ordering the appraisal.
A Worked Example With Both Ceilings
This is a modeled illustration, not market data. It uses percentages and ratios only, so the example stays focused on how the two ceilings interact.
Assume a standard long-term rental with an appraised value indexed at 100. The existing loan payoff is 55% of that value. The borrower asks for the program maximum of 75% LTV. Assume the rent study, run against PITIA on a 75% loan, produces coverage of about 0.92x. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
- Value ceiling: 75% of value.
- Coverage test at that loan size: about 0.92x.
That is below the 1.00 floor where many select programs start. Some select lenders in the network will review files below 1.00, with leverage and terms adjusted, but this example assumes a 1.00 floor.
- Coverage ceiling: about 69% of value, because the loan has to shrink roughly in proportion to get from 0.92x up to 1.00x. This is an approximation, since taxes and insurance do not shrink with the loan, so the real ceiling would sit slightly lower.
- Controlling limit: the coverage ceiling, at about 69%.
- Gross cash before costs: about 14% of value (69% minus the 55% payoff).
Now assume the appraiser’s reconciled rent comes in 10% lower than that modeled figure.
- Coverage at 75% LTV: about 0.83x.
- Coverage ceiling: about 62% of value.
- Gross cash before costs: about 7% of value. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
A 10% rent shortfall cut the cash-out roughly in half. That is the part investors miss. The payoff is fixed, so every dollar the loan loses comes straight out of the proceeds. Closing costs then come out of what remains, which is why a modest equity position plus a soft rent study can leave very little.
The reverse holds too. A larger down payment or lower leverage lowers the payment and can lift the ratio. It never erases the LTV cap, the credit floor, the reserve rule, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
What If the Rent Study Comes In Low?
A low number is a fixable problem on some files and a permanent one on others. The right move depends on why it is low.
| Option | Best when | Tradeoff |
|---|---|---|
| Take a smaller cash-out | Equity is ample, cash need is flexible | Less capital pulled |
| Re-lease at market | Unit is vacant or lease is stale | Appraisal must follow the new lease |
| Ask for comp review | Comps look dissimilar to the subject | Outcome is not assured |
| Add equity or reduce balance | The coverage ceiling is the binding limit | Uses your own cash |
| Wait and reposition | Rent is low due to condition | Delays the cash-out |
Do not sign a discounted lease just before the appraisal. Under the lower-of approach, a below-market lease caps the ratio, and a lease written to a friendly tenant draws closer review. Do not inflate a rent estimate either. Owner-estimated or listing-based rent is not a substitute for the appraiser’s supported figure.
Lowering the loan amount is the cleanest lever, because it raises coverage directly. If the rent is low and the cash need is firm, the property may be better suited to a different strategy than a cash-out refinance at this moment.
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.
Where the General Rule Breaks
Short-term rentals. Form 1007 documents monthly rent only. McKissock, an appraiser-education provider, notes it was not designed to estimate short-term-rental income. Short-term-rental collateral needs a different rent method set by the program. The network’s cash-out ceiling on short-term-rental collateral is 70%, versus 75% for standard rentals. Expect a 640 or higher score and about 12 months of hosting history. Coverage of 1.00 is the floor on a 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.
Vacant and needing work. The study can supply income for a vacant unit only when the property is rent-ready. Light cosmetic work is generally fine. Heavy rehab usually needs shorter-term financing first, then a refinance once the unit is rentable.
Two-to-four units. Form 1025 supplies the rent schedule. How each unit is treated, and how vacancy in one unit is handled, is program-specific.
Large balances. Standard programs run up to $3,000,000. Above $2,500,000 the network generally holds to 30-year fixed structures, and reserves step up to about 9 months of PITIA above $1,500,000.
Property types. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs, regardless of how strong the rent study looks.
Appraisal expectations. Treat a DSCR cash-out as needing a full appraisal. A waiver is not something to plan around.
Preparing Before the Appraiser Visits
Preparation changes the number more often than argument afterward does. Four steps help most.
- Make the unit rent-ready, with clean condition and easy access for the appraiser.
- Gather rent comps for similar nearby units, plus your own listing history if it exists.
- Renew any below-market lease at a supportable rent before the appraisal, if the tenant and market support it.
- Collect a property manager’s written opinion of rent, if you use one, as supporting context.
For the file itself, a no-lease cash-out usually calls for proof of ownership and entity documents, current insurance, the existing loan statement, reserve statements, and a clear explanation of the vacancy or lease status. Reserves vary by lender, leverage, loan size, and transaction type, and commonly run around 6 months of PITIA.
Common Misconceptions
A higher lease means a bigger loan. Often not. Many programs cap the income at market rent, so a lease above the study adds no extra loan.
The Form 1007 is a DSCR requirement. It is an appraisal form. The lower-of rule is a program convention, not a law.
The 1007 works for short-term-rental income. It does not. It documents monthly rent only.
No lease means no loan. Many vacant, rent-ready properties qualify on market rent, depending on program.
Cash-out means I get cash. The LTV cap, the coverage cap, the payoff, and closing costs can leave little or nothing.
Clearing 1.00 means positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.
The appraiser’s rent number is final. It can sometimes be improved with better comps or a new lease, though not with an unsupported estimate.
Running Your Own Numbers
Because Lendmire is a mortgage broker working with select wholesale lenders across 41 markets, including Washington, D.C., one rent study can be matched against several programs’ rent bases. For a closer look at the approval question itself, read Lendmire’s piece Can You Get Approved for a DSCR Cash-Out Refinance With a Rent Study Instead of a Lease?. The complete DSCR loans guide covers the wider program picture.
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. The site’s calculator gives an illustrative estimate you can adjust. Program terms change, and every file is underwritten individually, so nothing here is a commitment to lend.
Frequently Asked Questions
Do I need a signed lease for a DSCR cash-out refinance?
Not on every program. When no usable lease exists, the appraiser’s market rent is the usual substitute, and a vacant, rent-ready property can still qualify on many programs. Some programs prefer a lease or deposit history on a refinance, so ask before the appraisal is ordered.
Which rent counts if I have a lease and a rent study?
It depends on the program. Many use the lower of the two, some use the study only, and some use the lease with the study as a backup for vacant units. A lease above market often earns no extra credit, while a lease below market often holds the ratio down.
Can I use my own rent estimate instead of the appraiser’s?
No. An owner estimate or listing price is not a supported figure, and inflating it risks a misrepresentation problem. The appraiser’s reconciled rent, backed by comps, is what underwriting reviews.
Does the process change for a two-to-four-unit property?
The rent schedule comes from Form 1025 rather than 1007, and the unit-by-unit treatment is program-specific. Ask how vacancy in a single unit is handled before ordering the appraisal.
What happens if the rent study is low and I still want cash out?
The loan may shrink because the coverage ceiling falls with the rent. Your options include a smaller cash-out, re-leasing at market, asking the appraiser to review the comps, or adding equity. Select lenders in the network will review coverage below 1.00, with leverage and terms adjusted, but expect less cash from that path.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Form 1007, Single-Family Comparable Rent Schedule
2. Freddie Mac Form 1000 / Fannie Mae Form 1007
3. McKissock, Form 1007 and short-term rental appraisals
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: Can You Get Approved for a DSCR Cash-Out Refinance Instead of a Home Equity Investment? · Does a Withdrawn Listing Delay a DSCR Cash-Out Refinance? · How Lenders Underwrite a DSCR Cash-Out Refinance at 75% of the Pooled Portfolio Value
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.