The Quick Read: Usually not. When your signed lease is higher than the appraiser’s market rent, most programs we place files with count the lower number, which is the appraiser’s. The lease is not a way around a low 1007. The reverse also holds, because a lease below the 1007 normally sets the rent.
- A lease above the 1007 is trimmed down to the 1007 on most programs.
- A lease below the 1007 usually holds at the lease figure.
- A vacant property uses the 1007 alone.
- Rules differ by program, so confirm the rent basis before the appraisal is ordered.
- Clearing 1.00 coverage does not mean the property cash flows.
Here is the situation. You bought a rough property, rehabbed it, and leased it. Now you want a long-term DSCR loan to pay off the bridge or hard-money loan. The appraisal comes back with a market rent below what your tenant actually pays. You are holding a signed lease and wondering whether it settles the argument. It usually doesn’t. This article explains why, what to do instead, and how to avoid the problem next time. For the bigger picture on how these loans work, see Lendmire’s complete DSCR loans guide.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 29, 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 29, 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.
Key Terms Defined
DSCR (debt service coverage ratio): the property’s qualifying monthly rent divided by its full monthly housing obligation. A 1.00 ratio means rent equals the payment.
PITIA: principal, interest, taxes, insurance, and association dues. This is the payment figure the rent is measured against.
Form 1007: a one-unit comparable rent schedule in which the appraiser estimates what the property would rent for on the open market.
Form 1025: the appraisal report used for 2-4 unit properties. Its rent analysis plays the same role as the 1007.
Lower-of rule: the common convention that the lender counts the lesser of the lease rent and the appraiser’s market rent.
Takeout: the long-term loan that pays off your short-term rehab financing at the end of a BRRRR (buy, rehab, rent, refinance, repeat).
Seasoning: the waiting period between your purchase or rehab and the new loan.
Why the Lease Usually Can’t Override the Appraiser
The appraiser’s rent figure acts as a ceiling in most files. Here is the logic from the lender’s side. A lease is a private agreement between you and a tenant. You can sign a lease at any number, including one that is generous to your own spreadsheet. The appraiser’s schedule is an independent opinion built from comparable rentals. When the two disagree upward, the lender trusts the independent figure.
That is why a lease above the 1007 gets trimmed. The extra rent earns nothing in the coverage math. An above-market lease does not raise your DSCR.
One point worth stating plainly: there is no federal or agency rule that picks the rent for a DSCR loan. DSCR loans are business-purpose investor loans, and they are not agency products. The 1007 is an agency-published form, Fannie Mae’s Single-Family Comparable Rent Schedule, which describes itself as the way a lender obtains market rent from the appraiser. Freddie Mac publishes the same form as Form 1000, meant to give the appraiser a familiar format for estimating monthly market rent. DSCR programs borrow the form because it is the standard way to document rent. The decision about which rent counts belongs to each program’s guidelines.
Across our wholesale network, the lower-of treatment is the common convention. It is a convention, not a law, and a few lenders handle the gap differently. Some will look at a lease plus proof of receipts. Some will entertain a rent challenge if you bring strong comparables. Never assume. Ask.
How the Lender Picks the Rent Figure
The rent that counts depends on whether the property is leased, vacant, or somewhere in between. This table shows the typical treatment.
| Situation | Rent that typically counts | Effect on coverage |
|---|---|---|
| Lease above 1007 | The 1007 figure | Excess lease rent earns nothing |
| Lease below 1007 | The lease figure | Coverage is lower than market rent implies |
| Lease equals 1007 | Either, same number | No gap to manage |
| Vacant | The 1007 alone | Appraiser’s estimate decides the file |
| Month-to-month or expired lease | Often the 1007, program-dependent | Confirm with the lender first |
| Brand-new lease | Lower of lease and 1007, with proof | Thin payment history can slow acceptance |
Notice what this means for the BRRRR investor. If you leased the property at a strong post-rehab rent and the appraiser came in lower, the lease does not rescue you. If you leased it cheaply to get a tenant in fast, the lease can drag you down even when the 1007 looks fine.
Why BRRRR Takeouts Run Into This Problem
A BRRRR file is two tests, not one. The first test is value. The second is rent. A strong after-repair value does not save the file when the rent test fails.
Here is how the trouble starts. Your bridge lender’s after-repair value was a projection. The takeout lender orders its own appraisal, and that appraisal produces both a value and a market-rent opinion. Your projection is not an underwriting input. Only the new appraisal counts.
Then the rent test runs. Rent is divided by the full PITIA on the new loan. If the 1007 comes in low, the ratio drops. Many DSCR programs start at 1.00 coverage, and stronger ratios open better pricing and leverage. A low 1007 can pull you under the line you planned around.
Rehabbed units add a second wrinkle. If the property is vacant after the rehab, the 1007 is the only rent in the file. An appraiser working from nearby rentals may land on a realistic but conservative number. That is the central BRRRR risk. Your rehab may be beautiful, but the comparables the appraiser uses might not reflect it.
What a Low 1007 Does to the Loan
A low rent figure hits you in two ways. It lowers the ratio, and it can shrink the loan amount you are allowed.
Loan size comes down to the lower of two limits: the value limit and the rent limit. On a cash-out refinance, most programs in our network top out around 75% LTV. On a rate-and-term refinance, the ceiling is higher. But if the rent test caps the loan below what the value test allows, the rent test wins. You may end up bringing cash to closing to pay off your bridge lender, which leaves money trapped in the deal. That defeats the point of the BRRRR.
Run the logic with ratios rather than dollars. Say your lease implies coverage near 1.25x, but the 1007 produces coverage closer to 1.05x. You cleared the floor either way, but the pricing and leverage tier you qualify for may change. Now say the 1007 drops coverage to 0.95x. A path below 1.00 exists through select lenders in the network, with leverage and terms adjusted. It is a different product, not a loophole in the same one.
Seasoning and reserves also matter. Cash-out refinances commonly expect about 6 months of seasoning. Reserves are commonly around 6 months of PITIA, with some conservative rate-term files at modest leverage seeing reserves waived, and loans above $1,500,000 typically stepping up to about 9 months. These vary by lender, leverage, loan size, and transaction type.
When the Lease Can Help (and When It Can’t)
Here is the short decision path.
- Lease higher than the 1007: It cannot raise the rent that counts on most programs. Renewing it or re-signing it at the same number changes nothing.
- Lease lower than the 1007: It usually governs. Asking the lender to use market rent instead generally doesn’t work.
- Lease equal to or close to the 1007: The lease supports the appraiser’s number and shows real tenant demand. That helps the file’s credibility.
- Vacant property: No lease exists. The 1007 decides.
The honest exception is program-specific. A few lenders in the network will weigh a lease alongside proof of rent receipts, or will let you challenge the appraiser’s rent with better comparables. You find out which kind of program you are in by asking before the appraisal, not after.
The Proof Package for Your Lease
Even when the lease is the lower number and governs, you need to document it. A credible package typically includes:
- The signed lease with all pages and signatures.
- Proof of the security deposit.
- Proof of the first month’s rent and ongoing payments, such as bank deposits or receipts.
- The appraisal with its rent schedule.
- Rehab invoices and the insurance quote.
A fresh lease signed during lease-up has little payment history. Underwriters give that less weight than a lease with several months of clean receipts. If you can, show the first payment landing in your account. Concessions matter too. The 1007 form itself notes that rent concessions should be adjusted to the market, not to the subject property. If you gave a free month to land a tenant, expect questions.
The Fix Ladder: Lightest to Heaviest
If the 1007 already came in low, work down this list. Start with the lightest fix.
| Fix | What it changes | When it doesn’t work |
|---|---|---|
| Borrow less | Lowers the payment, lifts the ratio | Leaves cash in the deal |
| Renew at documented market rent | Aligns a low lease with market | Doesn’t help a high lease |
| Correct documented errors | Fixes wrong comps or square footage | Fails if the appraiser was right |
| Submit rent comps for reconsideration | May move the market rent | Depends on lender and appraiser |
| Wait and reappraise | Lets the market or lease history catch up | Costs carrying time and a new appraisal |
| Change program or lender | Different rent basis or coverage path | Pricing and terms adjust |
A larger down payment, meaning lower leverage, lowers the monthly payment and can lift the DSCR. It never erases the credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
One fix does not work: renewing a high lease to make it look more official. If the lender counts the lower of the two, a higher lease number still gets trimmed.
Diagnose First: Did Value Miss, Rent Miss, or Both?
Before you chase a fix, find out which test failed. Pull the full appraisal and the rent schedule. If value is fine and rent is low, your problem is coverage. If both missed, you may need a bigger change.
Then recalculate. A smaller loan changes the payment, which changes the ratio. Rerun the coverage on the new loan amount, not the old one. Also recheck reserves and cash to close. Do this before you appeal anything, because an appeal that can’t change the outcome wastes time.
Ask one question early: which income method does my program allow? If the program only takes the appraiser’s number, a challenge with strong comps is your only play. If it allows a lease with proof, a documentation push may work.
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.
Before You Order the Appraisal
This is where most of the leverage sits. Fixing a low 1007 after the fact is harder than preventing it.
1. Ask the lender’s rent basis. Find out whether the program uses the lower of lease and market rent, or something else.
2. Compare your lease to nearby leased rentals. If your lease is well above comparable rents, expect it to be trimmed.
3. Set the lease at market before ordering. Don’t sign a discounted lease just before the appraisal, and don’t inflate one hoping it counts.
4. Put rent comps in the file. Give the appraiser nearby leased comparables that reflect your rehab quality.
5. Stress-test on the lower figure. Model the deal on the lower of your lease and a conservative market rent.
6. Check taxes and insurance early. Both sit inside PITIA, so a surprise there hits the ratio as hard as a low rent figure.
7. Don’t count on an appraisal waiver. A BRRRR budget should assume a full appraisal.
Edge Cases
Short-term rentals. The 1007 is not the right tool here. McKissock Learning explains that the form is not designed for single-family properties used as short-term rentals and cannot be used to document nightly rates. STR files follow a separate income path. In our network, STR purchases go up to 75% LTV, refinances land around 70%, and cash-out tops out at 70% on short-term-rental collateral. Expect a 640+ score and about 12 months of hosting history. Purchases carry a 1.00 coverage floor, and refinances are handled on their own terms. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
2-4 units. The rent analysis sits inside Form 1025. A partly vacant building mixes lease rent for occupied units with market rent for empty ones.
Vacant property. The 1007 decides alone. There is no lease to compare.
Non-paying tenant. A lease with no payment history is a weak file. Expect the lender to lean on the appraiser’s figure.
Below 1.00 coverage. Programs below 1.00 are available through select lenders in the network, with leverage and terms adjusted. No-ratio structures are available only through select lenders, generally for borrowers who already own a primary residence. Both are separate paths with different pricing, not a fix for a low 1007 on a standard file.
Ineligible property types. DSCR financing is not offered on manufactured homes (single- and double-wide), log homes, or barndominiums, so no rent argument applies to them.
Common Mistakes
- Assuming the lease is the rent used. Ask first.
- Counting on an above-market lease. The excess earns nothing.
- Signing a cheap lease right before the appraisal. A low lease can govern and pull your ratio down.
- Treating 1.00 coverage as positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside the calculation. A property can clear 1.00 and still lose money.
- Skipping the lender-basis question. Asking which rent figure the lender uses costs nothing, and it is easy to do before you commit.
- Skipping the value-versus-rent diagnosis. You may be fixing the wrong test.
For the side-by-side comparison, see the article Lease Rent vs 1007 Market Rent for a BRRRR DSCR Takeout.
Frequently Asked Questions
Can I use my lease instead of a low 1007?
Usually not. If your lease is higher than the 1007, most programs count the lower appraiser figure. If your lease is lower, it typically sets the rent. A few programs weigh a lease with proof of receipts, so ask before the appraisal is ordered.
Does an above-market lease raise my DSCR?
Generally no. The excess over the appraiser’s market rent earns nothing in the coverage math on most programs. Your ratio is built on the lower figure, so a high lease looks good on paper but does not help the file.
Can I challenge a low rent figure?
Sometimes. A challenge works best with documented errors or strong nearby leased comparables. Whether it is allowed depends on the lender and the program, so find out the process before you pay for anything extra.
Does renewing the lease help?
Only if your lease is below market. Renewing at documented market rent can lift a low lease toward the 1007. Renewing a lease that is already above the 1007 changes nothing, because the appraiser’s number still caps it.
What if the property is vacant?
Then the 1007 alone sets the rent. With no lease to compare, the appraiser’s estimate decides your coverage. Bring good rental comparables so the appraiser sees what your rehab is worth.
If You Are Planning Your Takeout
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 mortgage broker arranging DSCR investor loans through select lenders in its wholesale network, across 41 markets including Washington, D.C. Approval is subject to lender guidelines and is not a commitment to lend.
Tax treatment varies; consult a qualified professional before relying on any deduction.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 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, Single Family Comparable Rent Schedule (Form 1007)
2. Freddie Mac, Form 1000 / Fannie Mae Form 1007
3. McKissock Learning, Form 1007 and short-term rental appraisals
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Reach a 1.25 DSCR on a Rental Before You Apply · Does a Signed Lease Help Get a DSCR Loan Approved? · How a DSCR Lender Counts Rental Income From a Signed Lease
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.