The Quick Read: Raise the rent to a level the appraiser’s comparable rentals can support, put the new amount in a signed lease or renewal, and do it before the appraisal is ordered, because most DSCR programs count the lower of the signed lease and the appraiser’s market rent. A tenant who has paid the same rent for years can quietly drag the coverage ratio below where it should be. The fix is simple on paper. It gets harder once you factor in the tenant, local law, and your timeline.
- Rent that counts is usually the lower of the signed lease and the appraiser’s market rent.
- A verbal promise, a planned increase, or an unsigned notice counts for nothing.
- Local law can cap the increase or lengthen the notice, so the gap may not close in one step.
- A big jump risks losing a good tenant, while a slow phase-in may push the refinance back.
- Clearing the coverage test is not the same as positive cash flow.
Why Does a Long-Held Tenant Hurt Your Coverage Ratio?
Long tenure is good for occupancy and bad for the ratio. Landlords with a reliable tenant often skip increases for years. The lease rent drifts below what the same unit would rent for today.
DSCR Cash-Out Calculator
Run the cash-out 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 property’s value, balance, taxes, and insurance 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. 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.
The lender does not judge the property by what it used to charge. DSCR is the rent used for review divided by the new loan’s PITIA, which is principal, interest, taxes, insurance, and any association dues. On an occupied property, most programs use the lower of two numbers: the signed lease and the appraiser’s opinion of market rent. If the lease is the lower number, it sets your coverage.
There is no federal rule behind this. It is a lender and program convention, and details differ across the lenders in the wholesale network Lendmire places files through. The old loan’s payment does not matter. Only the new loan’s PITIA does.
Key Terms Defined
Lease rent: the monthly rent in the signed lease currently in force.
Market rent: the appraiser’s independent opinion of what the unit would rent for, based on nearby comparable rentals.
Lower-of rule: the common convention of counting whichever of lease rent and market rent is smaller.
Rent schedule: the appraisal form that documents estimated market rent. For a single-family home it is the comparable rent schedule form, which the appraiser fills out using actual rentals nearby. Small 2-4 unit properties typically use a different report.
PITIA: principal, interest, taxes, insurance, and association dues, the full monthly obligation that rent is measured against.
How Does Underwriting Treat the Rent, Step by Step?
Underwriting treats rent as a two-number test. The lender takes the lease and the appraiser’s market rent, uses the smaller, and divides it by the new PITIA.
1. The lease is reviewed. The lender wants a signed lease, deposit records, and payment history that agree with each other.
2. The appraiser sets market rent on their own. Your lease does not drive that opinion. A lease above market gets no credit for the excess, and a lease below market pulls the counted rent down.
3. The lender picks the lower figure. That figure becomes the numerator.
4. The ratio runs against the new PITIA. Taxes and insurance stay fixed no matter what the rent does.
5. Proceeds follow the ratio. A rent shortfall can shrink the loan by more than the shortfall percentage, because the fixed costs take a bigger bite of a smaller rent.
Most programs in the network start at 1.00 coverage, and stronger ratios open better pricing and leverage. A separate path through select lenders takes coverage below 1.00, with leverage and terms adjusted. Either way, the rent raise is the one input you control before the appraisal.
Where Does a Rent Raise Not Move the Needle?
A higher rent does not lift your leverage cap. Cash-out refinances top out around 75% LTV on most programs in the network, and about 6 months of seasoning is the common expectation. Credit floors and reserves also stay in place. Most programs want around 660, a 620 floor exists in parts of the network, and 700 and above unlocks the strongest tiers. Reserves commonly run around 6 months of PITIA, stepping up to about 9 months above $1,500,000.
The strongest files clear both tests: enough equity and enough rental coverage. For a closer look at how rent and leverage interact, see Lendmire’s piece Does a Rent Increase Raise Your Leverage on a DSCR Refinance?. The complete DSCR loans guide covers the wider program picture.
Should You Raise the Rent at All?
Raise it when the gap is real and the refinance gain is worth the tenant risk. Skip it when the gap is small, the tenant is irreplaceable, or the timeline leaves no room.
| Situation | Likely path | Main risk |
|---|---|---|
| Small gap, fixed-term lease | Raise at renewal, modest step | Low |
| Large gap, tenant stable | Raise toward market, give ample notice | Tenant pushback |
| Month-to-month tenant | Sign a new lease at market | Weaker file if left alone |
| Gap too large to close | Stage it, or refinance later | Timeline slips |
| Law caps the increase | Raise to the cap, wait for next cycle | Gap stays open |
On a month-to-month tenancy, lenders often substitute market rent anyway. Month-to-month makes for a weaker file, not a blocked one.
Steps to Raise a Long-Held Tenant’s Rent Before a DSCR Refinance
Work backward from the date you expect the appraisal to be ordered. Everything below has to be finished before that point.
Step 1: Measure the gap. Compare the current lease to realistic market rent. Use actual nearby rentals, because the appraiser will. The rent schedule form says adjustments to comps should be made only for significant differences between the comparables and the subject. That tells you to pick comps that closely resemble your unit.
Step 2: Pick the increase size. Target what the comps support, not what you wish the unit would rent for. Pushing the lease above the appraiser’s number is wasted, because the lower figure still wins.
Step 3: Check local limits and notice. Confirm what your state or city allows before you send anything. More on that below.
Step 4: Send proper notice. Written notice, delivered the way local law requires, creates the record.
Step 5: Get the new rent into a signed lease or renewal. A planned increase that is not signed counts for nothing. Do this before the appraisal is ordered, not after.
Step 6: Build the proof package. The lender will check that the lease, the deposits, and the rent roll all agree.
Step 7: Let the appraiser work independently. Supply comps if asked, but expect their number to be their own.
What Goes in the Proof Package?
| Item | Why it matters |
|---|---|
| Signed lease or renewal | Only a signed document counts |
| Notice record | Shows the increase was done properly |
| Deposit and payment records | Must match the lease amount |
| Rent roll | Must reconcile to every lease |
| Tenant’s written acceptance | Backs up the signed lease |
A mismatch between the lease and the deposits is a common snag. If the lease says one number and the bank records show another, the file gets harder to read. A tenant who has underpaid for years, with the landlord tolerating it, creates exactly that problem.
How Much Can You Legally Raise It?
Local law is the biggest constraint. There is no federal cap. Limits exist only where a state, the District of Columbia, or a city has adopted one.
According to a tenant-law summary of rent increase rules by state, only California, Oregon, and Washington cap increases statewide. California’s formula is 5% plus regional CPI or 10%, whichever is lower. Oregon and Washington both use 7% plus CPI or 10%, whichever is lower. Those formulas update every year, so check your state’s own agency for the current number.
Some cities add stricter notice or caps on top, and some newer buildings or single-family homes are exempt. A missed notice or filing step can void the increase entirely. If a cap applies, you may only reach part of the market gap in one step. The lender would still use the lower figure.
This article is not legal advice. Confirm your local rules, and your lease terms, before sending notice.
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.
One Big Step or Several Small Ones?
The tradeoff is real. Closing a large gap in one step risks losing a good tenant. Staging it over several renewals may not clear your refinance window, so a gradual path may mean refinancing later.
Data from one property-management platform gives an indicative picture. Hemlane’s analysis of about 5,400 renewals found renewal rates of 78% for increases under 5%, 62% at 5-7%, 41% at 7-10%, and 18% above 10%. That is a single platform’s data, so treat it as a direction rather than a rule. The pattern is clear, though: the bigger the jump, the more tenants leave.
Turnover is not cheap either. A recent NAA survey as reported by Steadily found that 53.8% of property management firms reported average turn costs of $1,500-$3,500 per unit, and 19.4% reported costs above $3,500. The same piece cites a renter survey placing the point where tenants reconsider renewing at about an 8% increase.
Put those together and a practical approach emerges.
- Small gap: raise to market in one step at renewal.
- Moderate gap: raise to the highest level the comps support, and offer something in return, such as a longer term.
- Very large gap: ask whether a full jump is realistic. A partial raise plus a later refinance may beat a vacancy.
A good tenant who stays can be worth more than a maximized rent. But the lender’s number is still the lender’s number. If the refinance matters more than the tenant’s comfort, the full raise wins. If the tenant matters more, accept that the refinance may wait.
What If the Tenant Refuses, Leaves, or Pays Month-to-Month?
The tenant declines. You are left with the lower lease rent in the ratio. Options include a smaller loan, a different structure, or waiting one more renewal cycle.
The tenant leaves. A vacant unit generally counts at the appraiser’s market rent. That can help or hurt, depending on how far the old lease sat from market.
Month-to-month or an expiring lease. These are often replaced by market rent in underwriting. A fresh signed lease at market strengthens the file.
A related-party tenant. Rent is typically set at market, with closer review of the lease and payment history.
A discounted lease signed just to fill a unit. That can lower the counted rent. Resist the urge to sign a cheap lease right before a refinance.
Multiple units. One legacy unit can drag down the total, so the rent roll matters. Raise each unit’s rent as its own lease allows, and make sure the roll reconciles.
Short-term rentals. The rent schedule form documents monthly market rent and is not built to estimate nightly rates. Short-term-rental files run on different rules. On a standard refinance the network commonly sits around 70%, cash-out runs 70%, and borrowers typically need a 640 or better score and about 12 months of hosting history. 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.
A Before-and-After Example
Say a duplex unit has a lease about 15% below the appraiser’s market rent. With the lease as the lower figure, the ratio comes out near 0.95x. That is below 1.00, the point where select programs start.
Now raise the rent to market with a signed renewal before the appraisal. The same loan and the same PITIA now produce a ratio near 1.12x. These are modeled ratios, not figures from any specific market. The only thing that changed was the numerator.
If the file had stayed below 1.00, the paths would be a smaller loan, a sub-1.00 option through select lenders in the network with leverage and terms adjusted, or an interest-only structure, which select lenders offer. Each is reviewed subject to lender guidelines, credit approval, and property review. Raising the rent first may leave you with cleaner options.
A practitioner note from broker-level deal flow: files with long-held tenants usually fail on a mismatch, not on the rent itself. The lease says one thing, deposits show another, and the appraiser lands on a third number. Getting all three to agree before the file goes to the lender prevents most of the trouble.
Mistakes to Avoid
- Counting on a verbal agreement or an unsigned notice.
- Raising the rent after the appraisal has been ordered.
- Setting a lease above what the comps support.
- Skipping local notice or filing rules, which can void the increase.
- Treating a passing coverage ratio as proof of positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital costs sit outside the calculation.
If you want to see how a lease interacts with the appraiser’s number on larger loans, Lendmire’s piece Does a Tenant’s Lease Set the Rent on a Jumbo DSCR Purchase? covers that angle.
Frequently Asked Questions
Does a signed lease at a higher rent guarantee the lender will count it?
No. The lender counts the lower of the lease and the appraiser’s market rent. If your new lease sits above what the appraiser’s comps support, the excess earns no credit. The lease supports the appraiser’s conclusion but will not lift rent past it.
Should I raise the rent before or after the appraisal is ordered?
Before. The new lease needs to be signed and in the file when the appraiser is engaged. A bump after the appraisal usually will not help the file.
What if my state limits how much I can raise the rent?
Raise it to the permitted amount and understand the gap may stay open. If the cap leaves coverage short, consider a smaller loan or waiting for the next permitted increase.
Can I stage the increase over a couple of renewals?
Yes, but it may not clear your refinance window. If the first step lifts coverage enough, you may be fine. If not, refinancing a cycle later can be the cleaner path.
Does clearing 1.00 mean the property cash flows?
No. Coverage measures rent against PITIA only. Operating costs and vacancy are outside the calculation, so a property can clear the ratio and still run thin.
Next Steps
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. Qualification is subject to lender guidelines, and nothing here is a commitment to lend. Investors with a below-market tenant often find that the paperwork timeline, not the rent math, is the harder part to plan.
About Lendmire
Lendmire is a DSCR-focused mortgage brokerage, NMLS# 2371349, placing investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed by the lender around a property’s rental income rather than personal income documentation, which fits LLC-held rentals, self-employed investors, and portfolios scaling past conventional financed-property limits. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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. Freddie Mac Form 1000 / Fannie Mae Form 1007, Comparable Rent Schedule
2. Tenant Rights Info, Rent Increase and Rent Control by State
3. Hemlane, Average Rent Increase Per Year
4. Steadily, Tenant Retention Strategies
5. Fannie Mae Appraiser Update
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Refinance a Rental Awarded in Divorce With a DSCR Loan? · How to Structure Airbnbs and Long-Term Rentals Into One DSCR Loan · How to Size a Portfolio DSCR Loan on 10+ Doors Held in LLCs
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
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.