The Quick Read: Rent is the lesser of the appraisal’s market rent and the lease, unless three months of receipts support a lease above market. That rent is divided by a stress payment on the entire credit limit, and the result must reach at least 1.10x, subject to underwriting and lender guidelines. Your tax returns, W-2s and personal income are never part of the calculation.
- The line is a standalone second lien behind the first mortgage you keep, or a standalone first lien on a rental with no mortgage.
- A lease in place is required, and the Form 1007 market rent from the valuation sets the ceiling in most cases.
- The qualifying payment is principal and interest on the full line, not just the drawn balance. Taxes and insurance are not part of it.
- An LLC can stay on title, and the members sign as guarantors, through select programs.
- Offered in 15 of Lendmire’s 16 licensed states, every licensed state except Tennessee.
Landlords who want equity from a rental without refinancing the first mortgage tend to ask one question first: which rent number counts, the lease or the appraiser’s? This article walks through the answer step by step, then shows where the general rule bends.
What Is a DSCR HELOC, and Why Does Rent Qualify It?
A DSCR HELOC is a revolving line of credit secured by a non-owner-occupied rental of one to four units, qualified on the property’s rent instead of the owner’s personal income. Lendmire is a broker and places these lines through a wholesale lender in its network. A true HELOC, as the federal consumer-finance regulator describes it, is an open-end line that lets you borrow repeatedly against your equity, meaning value minus what you owe.
The term gets used loosely. A consumer HELOC on a primary residence is a personal-credit product reviewed on income and debts. The investor version is different. The rental’s income covers the payment, and the owner’s tax returns, W-2s and pay stubs are not part of the calculation. 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.
Two structures exist:
- Standalone second lien. The line sits behind a first mortgage you keep. The first mortgage is untouched.
- Standalone first lien. The line sits on a rental with no mortgage.
It is never closed together with a purchase, never a third lien, and never placed on your own home or a second home. The full range of investor products is laid out in the complete DSCR loans guide.
Key Terms Defined
DSCR: Debt service coverage ratio, meaning the property’s gross monthly rent divided by the qualifying payment.
Stress payment: A fully amortizing principal-and-interest payment on the entire credit limit, calculated at the start rate plus 2 percentage points.
Form 1007: The Single-Family Comparable Rent Schedule an appraiser completes to estimate monthly market rent.
Form 1025: The appraisal report for two-to-four-unit properties, which also covers market rent by unit.
Market rent: The monthly rent the appraiser concludes from comparable rentals.
In-place lease: The signed lease with a current tenant, which the program requires.
Receipts: Proof of rent actually paid, such as bank deposits or payment records.
CLTV: Combined loan-to-value, the first mortgage balance plus the new line, divided by value.
How Does Underwriting Treat the Lease and the 1007, Step by Step?
Underwriting follows a fixed sequence: confirm the structure, pick the rent figure, compute the ratio on the full line, then check credit, leverage and the property. Here it is in order.
Step 1: Confirm the structure. Your first mortgage determines the lane. If you keep a first mortgage, only a second lien is possible, and it carries a 720 credit score floor. A first lien is possible only on a rental with no mortgage, and it carries a 700 credit score floor. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Step 2: Order the valuation. On lines up to $400,000, the lender can use an automated valuation (confidence score of 85 or better) with a property inspection report, or a full interior appraisal. Lines above $400,000 take a full interior appraisal on Form 1004, 1073 or 1025. Appraisal waivers are not accepted. The valuation produces the value that drives leverage, and the appraiser’s rent opinion rides along with it.
Step 3: Pick the rent. A lease in place is required, so a vacant property is outside this lane. A two-to-four-unit property may have at most 1 vacant unit.
Step 4: Compute the stress payment. The qualifying payment is principal and interest on the entire credit limit at the start rate plus 2 percentage points. Not the drawn balance. The whole line. Taxes and insurance are not part of it. On a second lien, confirm on the file how the lender treats the first-mortgage payment, because the lender’s own coverage calculation governs.
Step 5: Test the ratio. Gross monthly rent divided by that qualifying payment must reach at least 1.10x. Every figure here is illustrative, and the lender’s own calculation governs.
Step 6: Underwrite the rest. Credit, mortgage history, title, exposure limits and property eligibility all still apply, as covered below.
What Is Form 1007, and How Does the Appraiser Build It?
Form 1007 is the appraiser’s estimate of monthly market rent on a single-family rental. Fannie Mae’s Selling Guide names it the Single-Family Comparable Rent Schedule. That guide requires it for agency loans on one-unit investment properties when rental income is used to qualify. DSCR lines are not agency products, so the agency requirement itself does not govern them. The form simply gives everyone a standard way to document rent.
The appraiser pulls comparable rentals near the property and adjusts for size, condition and features. The schedule is built on monthly-lease comparables. It also says that multiplying a nightly short-term-rental rate by 30 is incorrect on the 1007. For two-to-four-unit properties, the appraisal is on Form 1025, and rent is considered unit by unit.
One practical point follows. The appraiser’s rent opinion, not your pro forma, sets the market-rent side of the test. Your input still matters: the appraiser can only weigh what the file shows, such as the current lease, recent upgrades and local comparable rentals.
Which Rent Counts: The Lease, the 1007, or Both?
The lesser of the two counts, with one exception: a lease above market counts when three months of receipts support it. Most programs across a wholesale network treat the signed lease and the appraisal rent as a pair, and the lower figure controls unless that receipts exception applies.
| Situation | Rent counted | What can change it |
|---|---|---|
| Lease below market | The lease | Renew at documented market rent |
| Lease equal to market | Either (same figure) | Nothing needed |
| Lease above market | Market rent | Three months of receipts |
| Lease above market, receipts supplied | The lease | Lender review of the receipts |
| No lease in place | Not eligible | A signed lease with a tenant |
Run this on ratios, not dollars. Say a rental’s lease sits well under market and the file clears 1.05x on that lease, which falls short of 1.10x. Renewing at documented market rent before the valuation can move the counted rent up and lift the ratio. The renewal only helps when the lease was the lower figure. Now flip it. A lease above market with no receipts means the market rent counts, so the extra rent adds nothing to the ratio. Cheap leases signed just to fill a unit ahead of the appraisal can drag the counted rent down, so timing matters.
Is the 1007 alone enough? No. A lease in place is required on this lane, so the appraiser’s figure sets the market-rent side of the test but cannot replace the lease.
How the Full-Line Stress Payment Changes the Math
The stress payment is what separates a DSCR HELOC from most rental loans. The test ignores how much you plan to draw. It sizes the payment on the entire credit limit, at the start rate plus 2 percentage points, fully amortizing. So a $300,000 line is tested as though all $300,000 were outstanding on an amortizing schedule, even though you pay interest only on the drawn balance for the first 5 years.
That means rent has to carry the full limit, not your intended draw. If the ratio comes up short, a smaller line is the cleanest fix, because a smaller limit shrinks the stress payment directly. Taxes and insurance stay out of the qualifying payment, but they still affect what the property actually puts in your pocket. Clearing 1.10x tells you the rent covers the stress payment. It does not tell you the property produces cash after every operating cost.
Leverage, Credit, and the Rest of the File
Leverage depends on lien position, and a figure printed without its lien type misleads. Everything below is subject to underwriting and select program guidelines.
| Structure | Credit score | Maximum leverage | Line range |
|---|---|---|---|
| Second lien | 720 or better | 70% CLTV | $50,000 to $500,000 |
| First lien (no mortgage) | 740 or better | 75% LTV | Up to $500,000 |
| First lien (no mortgage) | 700 to 739 | 70% LTV | Up to $500,000 |
| First lien, larger line | 720 or better | 65% LTV | Above $500,000 to $1,000,000 |
A declining-market flag lowers the ceiling by 5 points, and Philadelphia lines carry a ceiling 10 points lower.
Other file rules:
- Draws and terms. At least 80% of the line is drawn at closing, never less than $50,000 at closing, and later draws are at least $5,000. The draw period is 5 years interest-only on the drawn balance, followed by a 25-year fully amortizing repayment period and a 30-year maturity. The rate is variable.
- Credit history. No 30-day late on a mortgage in the last 12 months, and 48 months since a bankruptcy, foreclosure, short sale or deed-in-lieu.
- Cash. No reserves and no cash to close are required.
- Exposure. At most 5 loans or $2,500,000 per borrower with the program.
- Borrowers. U.S. citizens, permanent residents, and non-permanent residents with a Social Security number. Foreign nationals and ITIN borrowers are not eligible.
A rental bought or refinanced inside the last 6 months is not eligible (that clock runs from the last note date to the new note date), and the owner must have held title for 6 months (settlement date to note date).
Where the General Rule Breaks: Edge Cases
Most of the trouble sits at the edges. These are the cases to check before ordering a valuation.
Month-to-month or expired lease. A lease in place is required here, so a lapsed lease is a problem to fix, not a number to work around. Renew first.
Above-market lease. Without receipts, no credit for the excess. With three months of receipts, the lease can count.
Low 1007. Check the comparables for errors, share the lease and recent upgrades with the appraiser, and consider a smaller line. The honest alternative: if the ratio only clears at a rent the market will not support, the line is the wrong size.
Short-term rentals. The 1007 is not built to estimate nightly rates, and this lane works from lease and market-rent evidence. 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.
Multi-unit properties. Rent is considered by unit, and at most 1 unit may be vacant.
Property types outside the lane. Rural-designated property, row homes, condotels, commercial or agricultural property, leaseholds, land trusts, age-restricted communities, hobby farms, modular and log homes, land contracts, mixed-use, a property listed for sale in the prior 2 months, and a property with a solar lien are not eligible. Single-family, PUD, townhome, two-to-four units, and warrantable and non-warrantable condominiums are.
LLC title. Vesting in the owner’s LLC is allowed on an investment property, subject to program terms. The members sign as guarantors, and a title holder who is not a borrower signs a non-borrowing owner acknowledgment and the security instrument.
Falling values. The CFPB notes that a lender can restrict further credit if the home’s value drops significantly. A revolving line carries that risk in a way a one-time loan does not.
How Does This Compare With a DSCR Cash-Out Refinance?
A cash-out refinance replaces the first mortgage. A DSCR HELOC leaves it alone. If your existing first mortgage is a good one, keeping it and adding a second lien may suit you better. If you would rather consolidate into a single loan, or your credit sits below the 720 second-lien floor, a cash-out refinance may be the better lane.
Adding a second lien also adds variable-rate and payment-variability risk. The CFPB notes that HELOCs usually carry adjustable rates and payments that vary with the balance. Pulling equity to buy another rental whose own ratio clears comfortably is easy to defend. Drawing the line to cover a property that does not cash-flow is a different decision.
Pre-Application Checklist
1. Confirm your state is among the 15 where the program is offered: Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Texas, Virginia and Washington. 2. Check the property type against the eligibility list. 3. Confirm both 6-month clocks are met. 4. Gather the signed lease and, if the lease may exceed market, three months of rent receipts. 5. Decide the line size knowing the full limit is tested, not the amount you plan to draw. 6. Check your credit tier: 720 for a second lien, 700 for a first lien. 7. Before the valuation, give the appraiser the lease, recent improvements and local rental comparables.
Frequently Asked Questions
Does an above-market lease raise my coverage ratio?
Not by itself. With three months of rent receipts on file, the lender can count the higher lease, subject to its review.
Can I qualify on the Form 1007 alone, without a lease?
No. A lease in place is required on this lane, and the 1007 sets the market-rent side of the comparison. A vacant rental needs a tenant and a signed lease first.
How long must I own the rental before a DSCR HELOC?
Two six-month clocks apply: the line is not available on a rental bought or refinanced in the last 6 months (last note date to new note date), and title must have been held for 6 months (settlement date to note date).
Do I need tax returns or reserves?
No traditional personal-income documentation, W-2s or pay stubs are used, and no reserves or cash to close are required. The file still documents the lease, credit report and valuation, and the line qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
Which form applies to a duplex or fourplex?
Two-to-four-unit properties are appraised on Form 1025, and rent is considered unit by unit. Single-family properties use Form 1007. At most 1 unit may be vacant.
If you are considering a home equity line on a rental property and want to see how the numbers work, Lendmire can help you compare DSCR HELOC options based on the property, the rent, the equity available, credit profile, combined leverage, and your goals. Reach the team at 828-256-2183 or request a quote. Every file is underwritten individually. This is not a commitment to lend.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps landlords and real estate investors open DSCR home equity lines of credit on their rentals — lines qualified on the property’s rent, never on the owner’s own home — through wholesale lenders in 15 of Lendmire’s 16 licensed states (every licensed state except Tennessee). Lendmire is never the lender; line amounts, ceilings and terms are set by the lender under its guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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
2. Fannie Mae Selling Guide B4-1.2-01
This article is part of Lendmire’s DSCR HELOC program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR HELOC When the Lease Rent Differs From Market Rent: The 2026 Guide · DSCR HELOC When the Rent Does Not Cover the Payment: The 2026 Guide · DSCR HELOC Requirements When Short-Term Rental Income Is Estimated From Market Data
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
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.