The Quick Read: A lender sizes the loan by counting only the rent it can document as collectible, usually the lower of the signed lease and the appraiser’s market rent, and then caps the loan at 75% of value on a standard rental. Back rent you are owed never counts as income. Arrears matter because they can lower the rent figure the lender uses, or remove it entirely.
- A tenant who owes rent does not automatically block a DSCR cash-out refinance, but it can shrink the loan.
- Two tests run side by side: equity (the 75% LTV cap on a standard rental) and rental coverage. The tighter one sets the loan size.
- A tenant who pays late but still pays usually keeps the lower-of rule intact. A tenant months behind often pushes the lender to market rent only, to excluding the unit, or to a wait.
- Repayment-plan installments are a record of debt. They do not raise the rent the lender counts.
- Clearing the coverage test is not the same as positive cash flow.
A landlord with a late-paying tenant faces two questions. Will the lender still lend? And how much less will the loan be? The rest of this article answers both.
DSCR Cash-Out Calculator
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As of Nov 5, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Key Terms Defined
Cash-out refinance: a new loan that pays off the old one and hands you the extra equity as cash.
DSCR (debt service coverage ratio): the monthly rent a lender counts divided by the full monthly payment. A result of 1.00 means rent equals the payment.
PITIA: principal, interest, taxes, insurance, and any association dues. This is the payment the rent is measured against.
LTV (loan-to-value): the loan amount as a percentage of the property’s appraised value.
Seasoning: how long you must own the property before a cash-out is allowed. Across most of the network that is about 6 months from title recording.
Market rent: what the appraiser estimates the unit would rent for, based on comparable monthly leases.
Rent schedule: the appraiser’s rent opinion. It is Form 1007 on a one-unit property. On two to four units, the rent analysis sits inside the Form 1025 appraisal report.
Arrears: rent that was due and has not been paid.
What a Cash-Out Refinance Looks Like on a Rental
You own a rental with equity. You want to pull some of it out, maybe for the next down payment. A cash-out refinance does that by replacing your current loan with a larger one. The difference, after payoff and closing costs, comes to you.
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. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal paycheck is not the centerpiece.
That is why a tenant who owes rent matters. The property’s income is the qualifying income. If the lender doubts that income, the loan shrinks.
Does a Tenant Who Owes Rent Block the Loan?
Not by itself. Arrears are a rent-evidence problem, not an automatic disqualifier. The lender wants to know which rent figure is believable and what the new payment looks like against it.
Think of three tenants in three different units. The first pays on the first of the month. The second pays on the twelfth, every month. The third has paid nothing for several months. All three leases may say the same thing, but the payment records behind them differ, and the lender weighs the record as well as the lease.
A vacant, rent-ready unit is a fourth picture. It gets market rent, because no lease is being tested. A non-paying tenant is a different problem. A lease exists, but the cash it promises is not arriving.
How Underwriting Sizes the Loan, Step by Step
Step 1: The appraisal and rent schedule. The appraiser estimates value and market rent. On a one-unit property, the rent opinion is Form 1007, whose own instructions describe it as the format an appraiser uses to estimate market rent. The estimate rests on comparable monthly leases. For short-term rentals, nightly rates multiplied by 30 are not an acceptable shortcut, according to Fannie Mae’s appraiser update. These agency forms govern conventional loans. DSCR loans are not agency products, but the appraisal form names carry over.
Step 2: Pick the rent. The usual treatment across the wholesale network is the lower of the signed lease and the appraiser’s market rent. A lease above market is capped by the appraisal. A lease below market sets the rent figure at the lease, so market rent does not lift it. Some programs use market rent only. Others want a leased property. Ask which basis applies before the appraisal is ordered.
Step 3: Test the evidence. The file needs the executed lease, bank deposits that match it, and a rent ledger. If rent is behind, the ledger runs from the first missed payment to today. If there is a repayment plan, the written agreement goes in too. Current rent and arrears payments must be shown separately.
Step 4: Divide by the new payment. Cash-out makes the loan bigger, so the same rent covers less. A smaller draw lifts the ratio. This is the lever you control.
Step 5: Compare the two limits. The loan equals the smaller of two sizes: what the value supports at the leverage cap, or what the rent supports at the required coverage. The old payoff and closing costs come off that figure. Equity and rent are two separate tests, and the tighter one decides.
What a Lender Lends on a Cash-Out Refinance When a Tenant Owes Rent
Start with the equity side. Cash-out on a standard rental tops out around 75% LTV across most of the network. A short-term rental cash-out is lower, at 70% on short-term-rental collateral. Seasoning is about 6 months from title recording. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Now the coverage side. Many select programs start at a 1.00 coverage floor. A separate path through select lenders in the network takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage.
Credit matters too. A 620 floor exists in parts of the network, most programs want around 660, and 700 or higher unlocks the strongest leverage tiers. Reserves commonly run around 6 months of PITIA, and about 9 months on loans above $1,500,000. These all vary by lender, leverage, and transaction type.
Arrears do not touch the equity cap. They hit the rent number, and the rent number drives the coverage test. A tenant in arrears can leave you with plenty of equity and too little counted rent.
Tenant Situation, Rent Counted, and Your Next Step
This table shows the usual treatment. Programs differ, so read it as a map, not a rulebook.
| Tenant situation | Rent counted | Evidence needed | Typical next step |
|---|---|---|---|
| Paying on time | Lower of lease and market | Lease, matching deposits | Proceed |
| Late but still paying | Lower-of rule usually holds | Ledger, short explanation | Proceed with ledger |
| On a repayment plan | Lower-of rule; plan payments excluded | Written plan, split ledger | Proceed, documented |
| Months behind | Market rent only, unit excluded, or wait | Ledger from first miss | Cure, re-lease, or wait |
| Eviction filed | Little or none | Case status, ledger | Resolve possession first |
| Vacant, rent-ready | Market rent | Appraisal rent schedule | Usually simplest path |
Worked Example: One Property, Three Tenants, Two Draw Sizes
These are modeled assumptions, not market data. The property is a standard rental at the 75% LTV cash-out cap. Assume market rent produces about 1.15x coverage at that full loan. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
- Tenant pays on time, lease equals market rent. Coverage is about 1.15x. The rent test passes at a 1.00 floor.
- Tenant pays on time, lease sits 10% below market. The lower-of rule counts the lease. Coverage falls to roughly 1.03x, which still clears 1.00 but with little cushion.
- Tenant is months behind, and the lender excludes the unit. Counted rent is zero for that unit. The ratio on a single-unit property collapses, so the realistic choices are to cure, re-lease, take far less cash, or wait.
Now cut the draw. A smaller cash-out lowers the payment, so coverage rises. The gain is smaller than the cut, because taxes and insurance do not shrink with the loan.
The same logic runs in reverse. Taxes and insurance stay fixed, so the rent left over for principal and interest is a smaller remainder. A 10% rent drop therefore takes a proportionally larger bite out of that remainder, and the loan the rent can support shrinks by more than 10%.
Where the General Rule Breaks
Repayment plans. Installments toward the old debt are not future rent. The lender separates them from current rent, and they do not raise the figure counted. Back rent you are owed is an asset to you. To the lender, it adds nothing to qualifying income.
Eviction filed or lease ended. On a single property, little or no rent counts, or the loan waits. On a portfolio loan, the unit may be carved out.
One delinquent door in a pooled loan. The shortfall may be absorbed in the combined test. The rent roll must still show every tenant’s balance.
Month-to-month or expired lease. These often run on market rent alone. Without a current lease, there is nothing to take the lower of.
Lease versus appraisal conflict. A lease well above the appraiser’s figure does not rescue you. The appraisal caps it. If you believe the appraiser’s rent is too low, you can challenge it with better comparable leases.
Timing. Market rent does not depend on your tenant’s payment habits. The lease evidence does. A ledger showing arrears at the time of review can weaken the lease evidence even when market rent is fine.
Short-term rentals. The monthly-comparables approach does not fit nightly pricing. Short-term-rental files lean on hosting history instead, with about 12 months and a 640 or higher score expected, and a 1.00 coverage floor on refinances.
Property type. DSCR financing is not offered on manufactured homes (single- and double-wide), log homes, or barndominiums, whatever the tenant situation.
Fix First, Proceed Now, or Wait?
The honest answer depends on how far behind the tenant is and how much cash you need. Here is a framework.
Proceed now when rent is current or only a little late, the ledger is clean, and the lower-of rent clears coverage at your target draw. Bring the ledger and a short explanation.
Fix first when the arrears are large enough that the lender may drop the lease. Your options are to bring the tenant current, regain possession, or sign a new lease with a paying tenant. Each moves the rent evidence toward something a lender can count.
Take less cash when equity is ample but coverage is thin. A smaller draw raises the ratio without waiting. For next steps, see Lendmire’s guide How to Qualify and Apply for a DSCR Cash-Out Refinance While a Tenant Owes Rent.
Wait when seasoning is short, the unit is headed to eviction, or the rent evidence is a mess. A rate-and-term refinance on a rental reaches up to 85% LTV but returns no cash. It can be a stepping stone while you resolve the tenant problem.
Stress-test your own file before applying. Take the lower of the lease and a realistic market rent. Divide by the full new payment, including taxes, insurance, and any association dues. Lower the draw until the ratio clears the program floor with room to spare.
Documents to Gather
- The executed lease, with every page and addendum.
- Bank statements showing the deposits that match the lease.
- A rent ledger from the first missed payment to today.
- A short written explanation of what happened and what you are doing about it.
- Any repayment agreement, signed by both sides.
- For multi-unit properties, a rent roll that shows every tenant’s balance.
If your lease and your deposits disagree, fix the explanation before the lender finds it. Conflicts erode trust faster than a late payment does.
Myths About Arrears and Cash-Out Sizing
Myth: the tenant must move out first. A tenant who owes rent does not automatically stop a cash-out. Late-but-paying files often keep the lower-of rule. Months behind is where removal, re-leasing, or waiting enters the picture.
Myth: back rent owed counts as income. It does not. Arrears and plan payments are not future rent.
Myth: a higher lease raises the ratio. The appraisal caps it. Rent above market earns no extra credit.
Myth: a non-paying tenant equals a vacant unit. A vacant, rent-ready unit gets market rent. A non-paying tenant brings a lease whose cash is not arriving, which is a harder file to evidence.
Myth: clearing 1.00 means positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, capex, and any arrears sit outside the calculation. A property can clear the test and still lose money.
Choosing the Right Program Through a Broker
The best program for your situation depends on the tenant file, the property type, your credit profile, and how much leverage you need. Programs in the network differ on which rent basis they use, whether they want a leased property, and how they treat delinquent units. Lendmire is a mortgage broker that shops multiple wholesale lenders and matches the scenario to the program. That is more useful than a single lender’s one-size-fits-all rule when your rent evidence is imperfect.
Programs change, and every file is underwritten individually. The complete DSCR loans guide walks through coverage, leverage, and documentation in more depth.
Frequently Asked Questions
Will a lender count the rent my tenant owes me?
No. Back rent is neither income nor future rent. The lender looks at the rent it can document as collectible going forward. The arrears matter only because they may lower the rent figure or weaken the lease evidence.
What if my tenant is on a repayment plan?
You can still apply. The lender treats plan installments as a record of debt, not income, and does not raise the counted rent because of them. The file needs the written plan and a ledger that separates current rent from arrears payments.
How does a delinquent unit affect a multi-unit or pooled portfolio loan?
It may be absorbed in the combined test if the other doors carry enough coverage. The rent roll must show every tenant’s balance. A unit with an eviction filed may be carved out of the loan.
Does my cash-out shrink if the lender uses market rent instead of my lease?
Only if market rent is lower. The lower-of rule means you never get credit above market. If your lease is below market, the lease caps coverage, and a smaller draw is the usual way to restore the ratio.
Can I wait and apply after the tenant is current?
Yes, and for many landlords that is the cleaner route. A clean ledger and a current lease put the file back on the lower-of rule. Seasoning of about 6 months from title recording also keeps running while you wait.
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 arranges DSCR investor loans through select lenders in its wholesale network, across 40 states and Washington, D.C., 41 markets in all. Call 828-256-2183 to talk through a tenant situation before you order the appraisal.
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) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Appraiser Update, June 2024
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 a DSCR Cash-Out Refinance on a Property Your Sister Lives in Rent-Free? · What a Lender Does With an Unpermitted Unit on a DSCR Cash-Out Refinance? · How Much Cash Comes Out of a DSCR Cash-Out Refinance for Repairs Without a Contractor?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.