When the rent on your signed lease is higher than the market rent the appraiser puts on the rent schedule, the rent we can use to qualify your DSCR loan is capped at 10% over the appraiser's number. Below that line you get the lease. Above it, you get market rent plus 10% and not a dollar more, no matter what the tenant is actually paying every month.
What follows is how the cap is written, how the appraiser arrives at market rent, what happens when the lease sits below market instead, and what the haircut does to a file sized on collections rather than on the appraisal.
The rule as written
Gross rent is the numerator of the DSCR calculation. The guideline sets it with a lesser-of test and then carves one exception into it.
The two halves do different work. The default is lesser of: if the lease is below the 1007, the lease governs. If the lease is above the 1007, the lesser-of test would ordinarily send you back to market rent, and the exception is what rescues part of the difference — a tolerance band of 10% above market, inside which the lease is taken at face value.
So there are three outcomes, not two:
| Relationship of lease to 1007 market rent | Rent used to qualify |
|---|---|
| Lease is below market rent | The lease amount |
| Lease is above market rent by 10% or less | The lease amount |
| Lease is above market rent by more than 10% | Market rent times 1.10 |
The third row is the one people get wrong. A borrower who is 20% over market does not fall all the way back to the appraiser's number. They fall back to 110% of it. The cap is a ceiling, not a reversion.
The guideline's own worked examples
The program document carries two examples on the page. They are reproduced here exactly as they appear, with no numbers of ours added.
| Example 1 — actual rent 20% above market | Example 2 — actual rent 5% above market | |
|---|---|---|
| Actual rent per lease agreement | $1,200 | $1,050 |
| Market rent per appraisal | $1,000 | $1,000 |
| Allowable amount for qualifying | $1,100 | $1,050 |
Example 1 is the cap doing its work. The lease says $1,200, the appraisal says $1,000, and the qualifying rent lands at $1,100 — market rent plus the full 10% tolerance. One hundred dollars a month of real, collected, contractually owed rent is invisible to the file. Example 2 is the tolerance doing its work: a $1,050 lease against a $1,000 market rent is a 5% spread, inside the band, so the lease amount is used whole and nothing is lost.
The cap only bites on a refinance
This is the piece that reframes the whole question, and it is easy to miss because the cap is written directly under the lease-versus-1007 discussion.
Gross rent requirements are split by transaction type.
On a purchase, the lease is not an input to the DSCR at all. We use 100% of the 1007 market rent. If you are buying a building whose tenants pay 25% over market on legacy leases, none of that premium reaches the qualifying calculation — and if they are 25% under market on stale leases, that drag does not reach it either. The appraiser's number is the number.
The lesser-of test and the 10% cap therefore live entirely on the refinance side, where both documents are required and must be reconciled. If you are buying, stop reading your seller's rent roll for qualifying purposes and start reading the 1007.
How the appraiser establishes market rent
The number that governs is not a broker opinion, a listings-site estimate, or what the property manager thinks the unit would fetch. It is a specific form, prepared under specific constraints.
Several constraints follow from that, and each of them shapes where the number lands.
It is an annual-lease number. Short-term and specialized-use rates are explicitly out of bounds as market rent. If your unit outperforms because it is rented by the week, that outperformance cannot reach the 1007 — it has to travel through the short-term rental path instead, which carries much harsher arithmetic.
It is comparables-driven, and the comparables are geographically tight. The appraisal must include at least three comparables in the same zip code or within one mile of the subject, and one comparable must be within one mile with limited net adjustments unless otherwise approved. If your rent premium comes from something the comparable set does not contain, the appraiser has limited room to adjust for it.
The report is a full valuation, not a rent memo. It must include all three approaches to value — sales, income and cost. Condominium and townhouse properties must be valued on a rental basis whenever less than 50% of the properties in the building or development are owned by individual homeowners. Properties rated C5 or C6, properties that are not lease ready, and properties rated Q6 for construction are ineligible, as are properties in fair condition. The appraisal report is good for 90 days, and a collateral desk review may be ordered if needed.
The reverse case: your lease is below market
Here the answer is short and it is not symmetric.
The default rule is the lesser of the lease or the 1007. When the lease is lower, the lease is the lesser and the lease is what qualifies. There is no 10% tolerance running in the other direction — the exception is written only for the case where the lease agreement is higher than the gross market rent on the appraisal. Nothing lets you reach up toward a market rent your lease has not caught up to.
For a landlord holding a long-dated below-market lease on a refinance, that is a hard floor: the upside visible in the appraisal is not spendable until the lease actually reprices. If your tenant is well under market and the lease is close to expiring, the sequencing of the new lease against the appraisal date matters more than almost anything else you control.
What happens when there is no clean current lease
The rent used to qualify has to be documented, and the documentation requirement changes with the state of your paperwork.
| Situation | Rental receipts required |
|---|---|
| Current lease provided | None |
| Expired lease with month-to-month language | None |
| Expired lease with extension or addendum showing the new rental rate | None |
| No lease available | 3 months proof of rental receipt |
| Month-to-month, no original lease available | 3 months proof of rental receipt |
| Expired lease, no month-to-month language and no extension | 3 months of rental receipts |
One structural consequence sits underneath that table: an original lease or a new lease with month-to-month terms will be limited to 60% LTV. Landlords who push rents by moving tenants onto month-to-month arrangements — often the fastest way to reprice a unit — should know that the arrangement caps leverage independently of anything the rent does.
What the haircut actually costs
DSCR is gross rent divided by the PITIA of the subject property, using the note rate. Real estate taxes come from the title policy or a current tax bill converted to a monthly figure; insurance from the approved insurance certificate; association fees from the appraisal or a current HOA statement. Interest-only loans may use the ITIA payment.
Because the capped rent is the numerator, every dollar the cap removes moves the ratio directly.
Illustration — the figures below are invented for demonstration and are not a quote, a rate, or a program threshold. Suppose PITIA on a single-family rental works out to $1,150 a month. The tenant pays $1,400 under a signed lease. The appraiser's 1007 comes back at $1,150 market rent.
The lease is roughly 22% over market, so it clears the tolerance band and the cap applies: qualifying rent is $1,150 times 1.10, or $1,265. On collections, the DSCR would have been about 1.22. On the capped rent it is about 1.10. The property is unchanged. The tenant is unchanged. Only the number the file may use has changed.
That difference is not cosmetic, because several program mechanics are keyed to DSCR bands rather than a smooth curve.
- DSCR below 1.00 is not permitted for inexperienced investors, for vacant properties, or for portfolio loans.
- DSCR below 1.00 requires 6 months of reserves.
- A minimum DSCR of 1.25x is required on loan amounts less than $150,000.
- A 2-4 unit property with a FICO of 740 or lower requires a DSCR of at least 1.0.
- Interest-only carries a minimum DSCR set as the program minimum determined by individual loan characteristics, at 1.10.
And the eligibility grid itself is banded, so falling out of the DSCR 1.0-and-above band into the 0.75-to-0.99 band costs leverage on top of everything else:
| Credit score | Max loan amount | DSCR ≥ 1.0, purchase / rate-term | DSCR 0.75-0.99, purchase / rate-term |
|---|---|---|---|
| 700 | $1,500,000 | 80% | 75% |
| 680 | $1,500,000 | 80% | 75% |
| 660 (1 unit) | $1,500,000 | 75% | 70% |
Those grid figures are a starting point. LTV reductions apply to loans with specific characteristics — unleased or vacant long-term rentals, certain eligibility factors, short-term rentals and non-warrantable condos among them.
The practical position of a landlord who has pushed rents hard
If you have spent two years repricing units aggressively and you are now refinancing, plan on this sequence.
Assume you will be qualified below collections. Size your expected proceeds on 110% of a realistic market rent, not on the rent roll. If your rents are 20% or 30% over what an annual-lease comparable set will support, the gap is real and it shows up as a smaller loan, not as a conversation.
Get the 1007 before you commit to a structure. The market rent estimate is the constraining input on a refinance and it arrives with the appraisal. Anything you decide about loan amount, interest-only or cash-out before you see it is provisional.
Keep the leases clean and current. The documentation table above rewards a current executed lease and penalizes gaps. Leases must be fully executed by an eligible tenant and by the borrower or guarantor as landlord, must be in the name of the borrower, guarantor or verified property manager, must cover 100% of the square footage of the unit, and must be on a form customary to the area. No borrower, guarantor, owner of a borrowing entity, or immediate family member may be the lessee. All tenants must be natural persons — exceptions for other entity types may be considered case by case. Leases with a term of three years or more are not permitted, and rent-to-own and contracts for deed are ineligible.
Expect the lease itself to be tested against the market. Leases must have a unit rental rate and terms consistent with rates and terms prevailing in the local market where the property is located. A rent far outside the local band is not just capped in the DSCR calculation; it invites a question about the lease.
Adjacent rules that cut rent the same way
Three neighboring situations produce a similar-looking haircut through different mechanics, and it is worth knowing which one you are in.
Fully furnished properties. If a furnished property has a lease in place and the current rent is higher than market rent, the guideline directs that we revert to market rent. That is a stricter instruction than the general 10% cap, and the two provisions sit in different sections of the same document. If your unit is furnished, read that case directly rather than assuming the tolerance band applies — [a fully furnished rental treated as vacant on a DSCR loan](/blog/fully-furnished-rental-treated-as-vacant-dscr-loan) covers it.
Vacant and unleased units. With no lease there is no lease-versus-market question, but there is a 5% LTV reduction and an occupancy definition to satisfy — see [a DSCR loan on a vacant rental property](/blog/dscr-loan-on-a-vacant-rental-property).
Short-term rental income. A different and more restrictive calculation entirely, with an 80% factor applied to gross rent and a 125%-of-market cap on refinance collection history.
The credit floor that sits alongside all of this
None of the rent analysis matters if the credit box is not met. On our DSCR program for 1-4 unit investment property, a minimum FICO of 660 is required for all guarantors. With a single guarantor, the middle score sets rate and LTV. With multiple borrowers or guarantors, rate and LTV are based on the guarantor with the lowest middle score, and every other guarantor must still meet the 660 minimum. A borrower cannot have only one credit score or less than 24 months of credit history.
What this page does not do
This page explains one calculation input on one program. It is not an approval, a rate quote, a commitment, or a pre-qualification, and nothing here creates an obligation to lend.
It does not tell you what your market rent will be. That number comes from a licensed appraiser on a 1007 or 1025, ordered on your specific property, and no one can give it to you in advance of the report.
It does not cover pricing. Rate, points, prepayment structure and interest-only availability are separate from the rent question and are quoted on a file, not on a page.
It does not resolve legal or tax questions. Whether a particular lease term is enforceable, whether a rent increase complies with local rent regulation, and how rental income is treated on your return are questions for your attorney, your accountant, and your municipality — not for us.
It does not cover the full underwriting file. Reserves, entity documentation, title, insurance, experience requirements, property condition, and the appraisal review process each carry their own rules and are addressed elsewhere. Where a lease sits near the tolerance line or the 1007 lands unexpectedly, the next step is to put the actual property in front of us and get a real read.
Guideline DSCR V28 · Reviewed August 31, 2026
Published September 1, 2026 · Updated September 1, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.