DSCR Loan on a Vacant Rental Property: What Vacancy Costs You at Refinance

On a purchase, an empty rental costs you nothing. We qualify it on 100% of the gross market rent from the appraiser's Form 1007, and the vacancy carries no leverage penalty at all. On a refinance, an empty unit costs you five points of LTV — the maximum LTV from the eligibility grid is reduced by 5% for any refinance transaction where the property does not meet the occupancy definition.

That is the whole answer. The rest of this page is about the three things that actually decide whether you eat that five points: what "occupied" means in unit counts (it is not 50%, and it is not the same threshold at every unit count), when the file gets stamped vacant even though a signed lease is sitting in it, and where vacancy stops being a price and becomes a decline.

The rule, exactly as it is written

Two things in that rule get misread constantly.

The reduction is to the maximum permitted per the eligibility grid — not to your requested LTV. If you are asking for 65% on a file whose grid maximum is 80%, the vacancy reduction takes the ceiling from 80% to 75% and your 65% request is untouched. Vacancy only bites when you are pushing leverage. A large share of the people who read a page like this and panic are not actually affected.

And it is a refinance rule. The purchase side is expressly carved out. Buying a vacant house, a house being delivered empty at closing, a house whose tenant is leaving before the closing date — none of that reduces your purchase LTV under this program.

Purchase versus refinance: two completely different qualifying paths

The difference is not just the LTV penalty. It is which document produces the rent number.

On a purchase we do not care whether a tenant is in place, because there is no rental history to read and no lease we would trust. The appraiser's opinion of market rent is the number, at full value, with no haircut.

On a refinance we expect both documents. Gross rent used in the DSCR calculation comes from the lesser of the lease agreement or Form 1007. The one exception: if the actual rent on the lease is above market rent on the appraisal, you can qualify on the lease amount, but the amount used cannot exceed 10% over the appraised market rent. A lease at 5% over market qualifies at the lease rent. A lease at 20% over market qualifies at market plus 10% and no more.

An expired lease is not automatically fatal. If it contains language converting it to month-to-month once the initial term ends, it is accepted as a current lease. But note separately that an original or new lease written on month-to-month terms is limited to 60% LTV — a much heavier consequence than the vacancy reduction, and one that catches landlords who "just keep it month-to-month" between long tenants.

What counts as occupied is a unit count

This is the part that is worth the page. The program does not ask whether the property is "mostly rented." It asks whether a specific number of units are occupied, and the number is not proportional.

A property is an Occupied/Leased Property only if it has at least this many occupied units:

Anything short of that line is an Unoccupied/Unleased Property and the 5% reduction applies on a refinance.

Read the two middle rows again. A duplex with one unit empty is a vacant property under this definition — it takes the same five-point cut as a completely empty single-family house, even though half of it is producing rent. A fourplex with one unit empty is fully occupied for this purpose and takes no cut at all. A fourplex with two empty units is vacant. The threshold moves from 100% at one and two units to roughly two-thirds at three units and three-quarters at four.

That asymmetry is the single most expensive misunderstanding in this part of the guideline. Duplex owners routinely assume 50% occupancy is fine because it "feels" half-leased. It is not fine. It is the full reduction.

What five points actually costs

The reduction comes off the grid maximum for your credit score, unit count and loan size. Applying the stated 5% to the standard DSCR eligibility grid at a DSCR of 1.00 or better:

The "if occupied" columns are the published grid. The "if vacant" columns are that grid less the stated five-point reduction; the grid itself is not restated with the vacancy built in.

660 is the minimum FICO on this program, and it is required for all guarantors, using the middle score. At 660 the grid is also restricted to single-family — one unit — which means at that credit tier the occupancy question is binary. There is no partial-occupancy cushion available to you.

The timing trap: when a signed lease still counts as vacant

If you take one operational thing away from this page, take this one. It costs more money than the rule itself.

The appraisal inspection date is the snapshot. Not the application date, not the underwriting date, not the closing date.

The practical consequences:

• You cannot fix it after the fact. Signing a tenant next week and asking for a re-inspection does not undo the vacancy finding. Re-inspection is explicitly not accepted for this purpose.
• A lease dated after the inspection is not accepted at all for this test. The unit is deemed vacant regardless of what the lease says.
• The lease alone is not enough even if it predates the inspection — the unit has to be occupied at inspection. A lease signed three weeks before the appraiser walks through, with a tenant who moves in the following month, leaves an empty unit on inspection day.

So the sequencing that saves you five points is: get the tenant in, then order the appraisal. Not the reverse. If you are two weeks from placing a tenant and the appraisal has not been ordered, holding the order is usually cheaper than the LTV you lose by rushing it.

Note the hedging in the source: the cut "may be applicable." It is not stated as automatic in that passage, and it points back to the occupancy definition — which is where the unit-count table above governs. On a fourplex with three other units leased, an unoccupied newly-leased fourth unit still leaves you at 3 of 4 and no reduction.

Lease-ready is a hard gate, not a discount

The 5% reduction assumes the vacant unit is financeable in the first place. It is not always.

Vacant units must be in lease-ready condition. Separately, properties with an appraisal condition rating of C5 or C6, properties rated "not lease ready," properties with a construction quality rating of Q6, and properties the appraiser reports as being in fair condition are ineligible — not reduced, not repriced, ineligible.

This is the line between "empty between tenants" and "empty because it is not habitable." A unit that has been gutted, has no working kitchen or bath, or is mid-renovation is not a vacant rental with a five-point cut. It is outside the program until the work is done and an appraiser can rate it accordingly.

There is also a neighborhood-level version of this test that has nothing to do with your own occupancy: properties in areas where more than 10% of other properties within a two-block radius are clearly vacant, abandoned or boarded up are ineligible. Your unit can be immaculate and still fail on the block it sits on.

What substitutes for a lease

On a refinance, the file needs rent evidence. What that evidence is depends on which version of "no lease" you actually have — and these are different situations that people lump together.

Notice that every row above describes a unit that is producing rent. The receipts requirement exists to document rent that is being collected without a clean lease behind it.

A genuinely empty unit has no receipts to produce. It has one surviving document: the appraiser's Form 1007 comparable rent schedule, which is required on every refinance regardless. Market rent estimates on that form must be based on an annual lease for residential purposes, on FNMA 1007 for a single family or FNMA 1025 plus Form 216 for a two-to-four. Short-term or specialized-use rental rates are explicitly not acceptable as market rent.

The guideline states that gross rent comes from the lesser of the lease or the 1007 "as applicable." With no lease, the 1007 is what applies. The guideline does not set out a separate, different rent methodology for vacant refinances beyond that — it prices the vacancy through the LTV reduction rather than by discounting the rent. If your file needs a specific figure confirmed before you commit to a rate lock, get it confirmed in writing rather than inferring it.

Where vacancy stops being a price and becomes a decline

Everything above assumes a DSCR of 1.00 or better. Below 1.00, vacancy changes character.

A DSCR under 1.00 is not permitted for vacant properties. The guideline states this two ways in two places, and the two are not identical. The DSCR restrictions section says two-to-four unit properties must have at least 50% occupancy. The occupancy definition sets out unit counts for refinance and cash-out transactions with a DSCR below 1.00: one occupied unit on a single family, one on a two-family, two on a three-family, and two on a four-family. Both were added to the document on the same date. The unit counts are the operative numbers, and on a triplex they are stricter than the 50% shorthand — two of three, not one and a half.

Note that these are a different, lower set of thresholds than the occupancy definition table earlier on this page. The earlier table decides whether you take the 5% cut. This one decides whether a sub-1.00 DSCR file is permitted at all. We treat the unit-count arithmetic for partially occupied refinances as its own subject; here the point is only that the two tables exist and are not interchangeable.

The practical read: if the property is completely empty and the market rent on the 1007 does not cover PITIA, there is no reduced-LTV path. The sub-1.00 DSCR grid exists, but a vacant property cannot use it.

How the 5% interacts with other reductions

The maximum LTV is built by running your file through a sequence of caps, and the permitted loan amount is the lowest value that results. Step one is the eligibility grid. Step two is the unleased-property reduction. Other caps sit alongside them:

• Short-term rental income used to qualify: maximum 60% LTV, minimum DSCR 1.25.
• Original or new lease on month-to-month terms: limited to 60% LTV.
• Non-warrantable condominium: 10% reduction, maximum 70%.
• Inexperienced investor: maximum LTV/LTC 75%, minimum DSCR 1.00, maximum loan $1,000,000.
• Student housing with shared common areas: 5% LTV reduction.

The guideline frames these as competing ceilings with the lowest governing, rather than publishing a formula for adding them together. If your file has two or more of these characteristics, do not assume the reductions simply stack arithmetically — ask for the calculated ceiling before you plan around a number.

A worked illustration

The figures below are invented for illustration and are not a quote.

A borrower owns a duplex free and clear, acquired four years ago. One unit is leased at $1,450. The other has been empty since March. The appraiser's 1007 puts market rent at $1,400 per unit. Middle FICO is 704. The requested loan is a cash-out refinance under $1,500,000.

The occupancy test: a two-family requires 2 of 2 occupied. One vacant unit makes this an Unoccupied/Unleased Property. The grid cash-out ceiling at 700 FICO and $1,500,000 is 75%; the reduction takes the working ceiling to 70%.

The rent test on the leased unit: the lease is $1,450 against $1,400 market, which is 3.6% over — inside the 10% allowance — so $1,450 is usable. The empty unit has no lease and no receipts, so the 1007 is the surviving document for it.

The path back to 75%: place a tenant in the second unit and have them in occupancy before the appraiser inspects. Not before closing. Before the inspection.

What this page does not do

This page explains how vacancy is treated on The Fiirm's DSCR program for 1-4 unit investment properties. It is not an approval, not a quote, not a rate, and not a commitment to lend.

It does not price your loan. The LTV ceilings above are program maximums by credit tier and loan size; your actual approved LTV depends on the full file, and rate and points are separate from leverage.

It does not cover the unit-count arithmetic for partially occupied refinances in depth, the treatment of short-term rental income and how that income is discounted, tradeline and credit-depth requirements, foreign national or entity-structure requirements, prepayment penalty structures, or cash-out proceed limits beyond the ceilings referenced here.

It does not address landlord-tenant law, eviction timelines, local rental registration or licensing, short-term rental ordinances, or the tax treatment of a vacancy period. Those belong with your attorney, your accountant, or your municipality — not with a lender.

And it does not tell you whether your specific vacant unit is lease-ready. That is the appraiser's rating, and it is made after the inspection, not before.

Guideline DSCR V28 · Reviewed August 31, 2026

Published September 1, 2026 · Updated September 1, 2026