The Quick Read: A low 1007 rent lowers the income the lender counts, and interest-only lowers the payment the lender divides that income by, so the two work against each other, but interest-only can only offset a rent shortfall up to the point where the tested payment stops shrinking.
- The 1007 is the appraiser’s opinion of market rent, and most programs credit the lower of that figure or your signed lease.
- Rent drops cut your coverage ratio in direct proportion. A 10% lower rent takes a 1.20 ratio down to 1.08.
- Interest-only changes the payment in the ratio’s denominator. It does not change the rent, the program floor, your credit, or your reserves.
- A ratio that clears only on interest-only is tested on the payment you will not pay forever.
- Clearing 1.00 is not positive cash flow. Repairs, vacancy, and management sit outside the math.
You priced the deal on asking rents. The appraiser came back lower. Now you are wondering whether switching to an interest-only structure can rescue the file. Sometimes it can. Often it only buys part of the gap, and it carries costs worth understanding before you choose it.
DSCR Calculator
Run the numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
This explainer walks through the mechanics step by step, then covers the edge cases and the decision in practice. For the wider picture, Lendmire’s complete DSCR loans guide covers how these loans work from the ground up.
What the 1007 Is and Why DSCR Lenders Order It
The 1007 is a rent schedule the appraiser attaches to the appraisal. It gives the appraiser’s opinion of what the property would rent for on the open market. On a single-family rental, it is how the lender gets a rent figure that does not depend on your say-so.
The appraisal does two separate jobs on a DSCR file. It sets the property’s value, which drives the loan-to-value ratio (LTV), meaning the loan amount as a share of value. It also sets market rent, which drives the coverage ratio. A low value and a low rent are different problems with different fixes, and a file can suffer from either one or both.
Two to four unit properties use a different form. The rent analysis for those sits inside the small-income-property appraisal report, known as Form 1025, with a rent opinion for each unit.
The form itself comes from the agency world. Fannie Mae’s Form 1007 is the Single-Family Comparable Rent Schedule, prepared by the appraiser and calling for comments on rent range, vacancy, and rent trends. DSCR loans are not agency loans. Investor programs borrow the form because it is a familiar, standardized way to document market rent. Beyond the form itself, agency rules do not govern how a DSCR file is underwritten.
How Underwriting Treats the Rent, Step by Step
Here is the sequence on a typical file across the wholesale network of lenders Lendmire works with. Details shift by program, but the order holds.
1. The appraisal is ordered. A single-family property gets a 1007. A two to four unit property gets a 1025. Appraisal-industry education from Blueprint describes the two forms and why lenders use them.
2. The appraiser builds a rent opinion. The appraiser looks at nearby comparable rentals, usually around three, and compares their in-place rents. Adjustments are made for differences such as bathroom count. The form instructs adjustments only for significant differences, so a stretched comparison does not get much room.
3. Underwriting picks the rent used for lender review. On a property with a signed lease, most programs use the lower of the lease or the 1007 market rent. A vacant property runs on market rent alone. Some programs will allow a variance when a current lease exists, and some look at the 1007 only. The program matters, so confirm the basis before you model.
4. The denominator is chosen. The coverage ratio, known as DSCR (debt service coverage ratio), is rent used for lender review divided by the monthly housing obligation. On a standard amortizing loan, that obligation is PITIA: principal, interest, taxes, insurance, and association dues. On an interest-only loan, it is ITIA: the same list minus the principal portion. Flood insurance and association dues count either way.
5. The ratio meets the program floor. Select programs start at 1.00. A separate path through select lenders in the network takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios generally open better pricing and higher leverage.
Notice what step 3 does not do. A lease above market gets you no credit for the extra. The 1007 acts as a ceiling. A lease below market does the opposite and drags the ratio down for as long as that lease runs.
How a Low 1007 Moves the Ratio
Rent sits in the numerator, so the ratio moves in direct proportion to it. A 10% drop in rent used for lender review cuts the ratio by 10% of its prior value. A 1.20 becomes 1.08. A 1.10 becomes 0.99, which is just under the 1.00 mark where select programs start.
Here is the part that catches investors off guard. Taxes and insurance do not shrink when rent does. They stay put, and the interest on the loan is the only piece you can reduce by borrowing less. So when you shrink the loan to restore the ratio, the loan has to fall by more than the rent shortfall in percentage terms. A 10% rent miss can easily mean a loan reduction well beyond 10%.
That ripples into cash to close. A smaller loan means a bigger down payment. Purchase files on most programs land between 75% and 80% LTV, and the select high-leverage programs that reach 85% LTV on a purchase want a score around 700 or better. A low rent can push you off those leverage tiers entirely.
What Interest-Only Changes (and What It Doesn’t)
Interest-only changes one thing: the payment the lender divides your rent by. The rent stays the same. The program floor stays the same. The credit minimum, the reserve requirement, and the LTV cap stay the same. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Across the network, interest-only periods are available through select lenders, usually layered on a longer-term structure. The spine of the market is still the 30-year fixed. Most programs that offer interest-only test the ratio on the interest-only payment, which is why it helps. A few run the ratio on the fully amortizing payment instead, and on those, interest-only gives you nothing at the qualifying step. Ask which test applies before you count on it.
Think of interest-only as a lever on the denominator and nothing more. It can narrow a rent gap. It cannot fix a credit score, add equity, or satisfy reserves. Many files that fail on a low rent also fail on LTV, because a low appraisal often moves both numbers at once, and interest-only does not touch the second problem.
The Hero Example: Same Property, Four Outcomes
Run the numbers on a single hypothetical rental. The ratios below are illustrative and modeled, not market data. Assume the rent the investor planned on, then a 10% lower 1007, each tested two ways. Assume the interest-only payment shrinks the monthly obligation by about 15%, which depends on the loan and its terms.
| Scenario | Amortizing test | Interest-only test |
|---|---|---|
| Planned rent | 1.10 | about 1.29 |
| 1007 rent 10% lower | 0.99 | about 1.17 |
Read the table by column. On the amortizing test, the planned rent clears 1.00 and the low 1007 slips just under it. On the interest-only test, both clear 1.00 with room to spare. That is the best case for interest-only: a rent miss that would sink a file on the standard structure gets absorbed.
Now stretch the shock. If the 1007 came in about 25% below plan, the interest-only ratio would fall to roughly 0.97. The structure that rescued a 10% miss cannot rescue a 25% miss. The cushion interest-only provides is real but finite.
If the file still lands under 1.00, you have other paths. Select lenders in the network offer coverage below 1.00 with leverage and terms adjusted. Whether any of this works on your file depends on lender guidelines, credit approval, and property review.
The Cost of Qualifying on Interest-Only
Interest-only moves the payment problem into the future. It does not remove it. Some points to weigh before you choose it just to pass the ratio:
- The payment resets. When the interest-only period ends, the balance starts amortizing and the monthly obligation rises. The ratio is tested at the start, not retested later.
- You build no equity from paydown. During the interest-only period, the balance stays flat. Appreciation and rent growth are doing all the work.
- Qualifying is not cash flow. DSCR compares rent to the housing payment only. Repairs, vacancy, management, utilities, and capital expenditures sit outside the calculation, so clearing 1.00 does not mean the property pays you every month.
- Your exit plan matters more. If you plan to refinance or sell before the period ends, the reset matters less. If you plan to hold, model the property at the fully amortizing payment too.
A broker’s rule of thumb: model the deal at the lower of the lease or comp-based rent, add flood insurance and association dues, and run it on the amortizing payment as a stress test. If the property still works there, interest-only is a bonus. If it only works on interest-only, you are relying on a structure to hold the deal together.
The Fix Ladder When the 1007 Comes in Low
When the number lands below plan, work through these steps in order. Each changes something different.
| Step | What it changes | Trade-off |
|---|---|---|
| Check the report for errors | Rent figure | Only works if there is an actual mistake |
| Request a fact-based review | Rent figure | Needs better comps; no guarantee |
| Add interest-only (if offered) | Tested payment | Reset later; no equity paydown |
| Lower the loan amount | Payment and LTV | More cash down |
| Renew a below-market lease | rent used for program review | Needs a tenant willing to renew |
| Switch programs | Floor, leverage, terms | Terms are adjusted |
A larger down payment lowers the payment and can lift the ratio, but 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.
For a closer look at how Lendmire handles a low rent schedule on a refinance of a property you just rehabbed, see its article How to Handle a Low 1007 Rent on a BRRRR DSCR Takeout.
Disputing a Low 1007
Treat the 1007 as the appraiser’s independent opinion, not a negotiation. A dispute needs evidence. Good evidence includes rentals that actually leased nearby, not listings, and factual errors in the report such as a missed bathroom or a wrong unit count. Listing screenshots and asking prices do not override the appraiser’s figure.
Even strong evidence can fail. An appraiser can review the comps and stand by the original number. Plan for that outcome, and have the next rung of the ladder ready before you submit the review.
If the file has already been turned down on a low rent schedule, Lendmire’s piece DSCR Loan Denied Because The 1007 Rent Schedule Came In Too Low covers the recovery options.
Where the General Rule Breaks: Edge Cases
Lease above market. The extra rent earns you nothing. The 1007 caps it on lower-of programs, and a dispute with solid comps may still not move the number.
Lease below market. A legacy tenant on an old lease caps your ratio. If the lease is close to renewal, renewing at a supportable rent before you apply can help.
Vacant property. Market rent alone sets the income. There is no lease to compare, so the appraiser’s number carries all the weight.
Short-term rentals. The 1007 prices a monthly lease, not nightly rates. The Appraiser Update from Fannie Mae addresses the form’s purpose and its one-unit scope, and it touches on short-term rentals. Short-term rental files are underwritten on their own terms. Purchase leverage tops out at 75% LTV on short-term rental collateral, and cash-out sits at 70%. 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. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Two to four units. The 1025 gives a rent figure for each unit, and the appraiser reconciles them. A low reading on one unit pulls the whole ratio down.
Both value and rent low. A low value cuts the loan through LTV while a low rent cuts the ratio. Fixing only one may not restore eligibility.
Cash-out refinances. Cash-out tops out around 75% LTV on standard rentals across most of the network, and about six months of seasoning is the common expectation. A low rent on a cash-out hurts twice, because the ratio and the maximum loan both tighten. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Reserves and loan size. Reserves vary by lender, leverage, and transaction type, commonly around six months of PITIA. Loans above $1,500,000 typically step up to about nine months. Conservative rate-and-term files at modest leverage under that size can see reserves waived. Above $2,500,000, the network generally holds to 30-year fixed structures, so interest-only is not part of the picture there.
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.
Key Terms Defined
1007: The rent schedule form an appraiser attaches to a single-family appraisal to give an opinion of market rent.
1025: The appraisal report form for two to four unit properties, which includes a rent opinion for each unit.
DSCR: Debt service coverage ratio, meaning the property’s rent used for eligibility review divided by its monthly housing obligation.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation on an amortizing loan.
ITIA: The same obligation without principal, which is what the lender tests on an interest-only loan.
Interest-only period: A stretch at the start of the loan when you pay interest and no principal, after which the balance begins to amortize.
Lower-of rule: The common practice of crediting the smaller of the signed lease rent and the 1007 market rent.
LTV: Loan-to-value, the loan amount as a percentage of the property’s appraised value.
The Investor Decision in Practice
Here is how the decision tends to break down once the number is in.
Interest-only is likely to solve the problem when the rent miss is modest, the program tests the interest-only payment, your credit and LTV are fine, and you can carry the property comfortably after the payment resets.
Interest-only is unlikely to solve it when the rent miss is large, the program tests the amortizing payment, value also came in low, or your credit and reserves are already near the edge.
Walking away is reasonable when every fix requires more cash than the deal justifies, or the property only works on a structure you would not choose if the rent had come in on plan. A low 1007 is an early warning about a weak deal, and sometimes the warning is correct.
Tax treatment varies; consult a qualified professional before relying on any deduction. Programs change and every file is underwritten individually, so nothing here is a commitment to lend.
Frequently Asked Questions
Does interest-only lower the DSCR requirement?
No. The floor stays where the program sets it. Select programs start at 1.00, and a separate select-lender path goes below 1.00 with leverage and terms adjusted. Interest-only changes the payment the rent is divided by, which can lift your ratio, but the bar itself does not move.
Which rent does the lender use, the lease or the 1007?
On most programs, the lower of the two. A lease above market is capped at the 1007 figure, and a lease below market pulls the ratio down. Vacant properties run on market rent alone. A few programs use the 1007 only, and a few allow a variance when a current lease exists, so confirm the basis for your program.
Can I dispute a low 1007?
You can ask for a review, but it needs evidence. Recently leased comparable rentals and factual errors in the report carry weight. Listing prices and asking rents do not. Even a well-supported review can leave the number unchanged, so keep a backup plan ready.
Will interest-only always lift my ratio?
Only when the program tests the interest-only payment. A few lenders in the network run the ratio on the fully amortizing payment, which erases the benefit at the qualifying step. Ask which test applies before you commit to the structure.
Does a ratio above 1.00 mean the property cash flows?
No. DSCR compares rent to the housing payment only. Repairs, vacancy, management, utilities, and capital expenditures are outside the calculation, so a property can clear 1.00 and still cost you money each month.
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, credit approval, and property review.
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.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your investment property. No commitment required.
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. Blueprint, overview of Form 1007
3. Fannie Mae Appraiser Update on the rent schedule and short-term rentals
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Interest-Only DSCR Loan vs Investment Property HELOC in an LLC · How to Get a DSCR Loan With Only Three Months of Rental History · Interest-Only DSCR Loan vs. 1099-Only Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.