If the tenant in your rental is on a month-to-month arrangement, and the lease in the file is written on month-to-month terms, the DSCR program limits the loan to 60% LTV. That is a hard ceiling, not a reduction off your grid maximum, and on a strong file it can cost fifteen to twenty points of leverage.
The fix is usually a single afternoon of work: get a term lease signed — twelve months or longer — before the appraiser walks the property. This page explains exactly what the cap covers, the one common situation that looks like month-to-month but is not treated as month-to-month, what we accept as proof of rent when there is no lease at all, and what the term lease is actually worth in dollars.
The rule, stated plainly
The DSCR guideline sets out how gross rent is documented on a refinance. Buried in that list is the LTV limitation.
This is a recent addition. The guideline's own change log records it under Debt Service Coverage on 05/30/2025 as a new restriction. It is not a legacy rule that has quietly stopped being enforced — it is the newest thing in that section.
Two things about how it is worded matter.
First, it is a limit, not a reduction. Other adjustments in the program are subtractive: an unleased property takes a 5% LTV reduction off the grid maximum on a refinance. The month-to-month rule is different. It names a number. Whatever the eligibility grid would otherwise allow you, the answer becomes 60%.
Second, it is written about the lease document, not about the tenant's state of mind or the length of their stay. A tenant who has lived in the unit for nine years on a piece of paper that says "month to month" is a month-to-month file. A tenant who moved in four months ago on a twelve-month lease is not.
Why a month-to-month tenancy is thinner evidence
A DSCR loan is underwritten on the property's cash flow. There is no personal income calculation, no tax returns, no employment verification. The debt service coverage ratio — gross rent divided by the PITIA of the subject property — carries the entire qualifying burden. On a refinance, we obtain both a current lease agreement and Appraisal Form 1007, and the qualifying rent is the lesser of the two.
That makes the lease a collateral document, not a formality. It is the evidence that the income stream we are lending against exists and will continue to exist.
A term lease is a contract that obliges a named tenant to pay a stated rent for a stated period. A month-to-month tenancy obliges no one to anything beyond the next thirty days. Both may produce identical rent this month. Only one of them is evidence about next year.
That is the whole of the reasoning, and the program's response to it is not to decline the loan — month-to-month files are eligible — but to require more of the borrower's own equity to sit underneath it. At 60% LTV, a 40% cushion absorbs the vacancy that a thirty-day notice can create.
What proof of rent we accept, case by case
The guideline sets out a matrix. It turns on what document exists, not on what the tenant is doing.
| Situation | Rental receipts required |
|---|---|
| Current lease provided | None |
| Expired lease containing month-to-month (MTM) language | None |
| Expired lease, extension or addendum provided with a 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 MTM language and no extension provided | 3 months of rental receipt |
| Original lease or new lease with month-to-month terms | Limited to 60% LTV |
Read the second row again, because it is the most valuable line on this page.
The expired lease that rolls over is not the same file
A twelve-month lease that has run its term and contains language stating it becomes a month-to-month lease once the initial term expires is treated as allowed by the guideline, in the same sentence that requires a current lease on a refinance. It sits at row two of the matrix: no rental receipts required.
The 60% limitation, by its own wording, attaches to an original lease or new lease with month-to-month terms — a lease that was written that way. An expired term lease with holdover language began life as a term lease and is documented as one.
This distinction is worth real money and it is almost never explained. Many landlords with a long-tenured tenant assume they are in the worst category. Frequently they are not — they are in the best-documented one, and the paperwork proving it is sitting in a drawer.
What counts as three months of proof
Where three months of rental receipts are required, the guideline names the requirement and the period. It does not prescribe the format. We will tell you what we need for your specific file rather than guess at it here — but assemble what you have before you apply: deposits that tie to the rent amount, a property manager's statement, a rent ledger. Do not build a document after the fact.
The lever: sign a term lease before you apply
If your tenant is genuinely on month-to-month terms with no original term lease behind them, and they intend to stay, the fix is to convert the tenancy to a term lease. There are five constraints on doing that correctly, and getting any one of them wrong wastes the effort.
1. Twelve months or longer. A lease shorter than twelve months is a short-term lease. Properties with a short-term lease of less than twelve months that are not listed on any short-term rental website are also limited to 60 LTV — though in that case rental history is not required. A six-month lease buys you nothing on leverage. Market rent estimates on the appraisal are themselves required to be based on an annual lease.
2. Under three years. Leases with a term of three years or more are not permitted. Your usable window is twelve months up to just under thirty-six.
3. An eligible tenant. The lease must be fully executed by both the tenant and you as landlord. An eligible tenant is anyone other than a borrower or guarantor, an affiliate, an officer, director, executive employee or manager of the borrowing entity, or a family member of any of them — spouse, siblings, ancestors and lineal descendants are named. All tenants on leases must be natural persons; other entity types may be considered case by case. A lease to your son does not fix a month-to-month file. It creates a different problem.
4. Correct on its face. The lease must be in the name of the borrower, guarantor or a verified property manager as landlord; carry a unit rental rate and terms consistent with prevailing rates and terms in the local market; be on a form customary to the area and compliant with applicable legal requirements including required disclosures; and cover 100% of the square footage of the unit. Rent-to-own arrangements and contracts for deed are ineligible.
5. Signed before the appraisal inspection. This is the one that catches people.
The practical order of operations is: find the original lease first; if there isn't one, get the term lease signed and the tenant in place; then order the appraisal. Not the other way around.
What the term lease is worth
Here is the arithmetic, using the program's Standard DSCR eligibility grid for a one-unit property with a DSCR at or above 1.00 and a loan amount at or below $1,500,000.
| Guarantor FICO | Purchase / rate-term max LTV | Cash-out max LTV | With month-to-month lease |
|---|---|---|---|
| 700 | 80% | 75% | 60% |
| 680 | 80% | 70% | 60% |
| 660 | 75% | 65% | 60% |
Note what the table says about credit. At a 660 middle score — the program minimum, required of all guarantors — a cash-out refinance tops out at 65% anyway, so the month-to-month cap costs five points. At 700, on a rate-and-term refinance, it costs twenty. The stronger your file, the more the month-to-month lease takes from you. Borrowers with excellent credit are the ones most likely to shrug at a lease document, and they are the ones it punishes hardest.
An illustration
The following uses invented figures for illustration only. It is not a quote, an approval, or a statement of what your property will support.
Assume a single-family rental appraising at $500,000, one guarantor with a 700 middle score, a rate-and-term refinance, and a DSCR comfortably above 1.00 at every LTV shown.
The gap between the first and third lines is $100,000 of loan proceeds, produced by nothing but which document is in the file. On a cash-out refinance the gap is $75,000. Against that, the cost of the fix is a conversation with a tenant who is already paying you and a lease form.
That is the case for handling this before you apply rather than discovering it in underwriting, where the appraisal has already been ordered and the sequence can no longer be corrected.
Edge cases worth knowing
A vacant unit is a different problem with a different answer. Month-to-month is a documentation limitation on an occupied property. A property with no tenant at all is governed by the occupancy definition and takes a 5% LTV reduction on refinances, along with other consequences. Those are covered in [DSCR loans on a vacant rental property](/blog/dscr-loan-on-a-vacant-rental-property).
Furnished properties. If a fully furnished property has no lease in place, it is treated as vacant. If it has a lease in place and current rent is above market rent, we revert to market rent.
Student rentals with shared common areas. These are permitted, but the lease must be annual and include a parent guarantee, all leases must share the same start and end date, the property must be within five miles of a college or university, and a 5% LTV reduction applies. A month-to-month arrangement cannot satisfy the annual-lease requirement, so this is not a category where the month-to-month question is open.
Purchases. On a purchase we obtain Appraisal Form 1007 and use 100% of gross market rent in the DSCR calculation — the lease is not the qualifying rent document, and the rental-receipt matrix sits within the rent-documentation requirements that govern refinances. The 60% limitation is written without a transaction-type qualifier. If you are buying a tenant-occupied property where the tenant is on month-to-month, raise it with us before you go under contract rather than assuming either answer.
Short-term rentals are a separate category entirely. A property whose rental term is under twelve months, variable in duration, and typically not subject to a traditional lease is a short-term rental: maximum 60% LTV, minimum DSCR 1.25x, an additional six months of PITIA reserves, and inexperienced investors are not permitted to qualify on short-term rental income. Converting an Airbnb to a month-to-month tenancy does not move you out of that category by itself.
The short version
If your tenant is on month-to-month terms:
1. Find the original lease. If it has language rolling it to month-to-month after the initial term, you are likely in the documented category and may need no receipts.
2. If there is no original lease, expect to provide three months of proof of rent, and expect the 60% ceiling if the lease in the file is written on month-to-month terms.
3. If the tenant is staying, sign a term lease of twelve months or more and under three years, with an eligible tenant, on a customary form, covering the whole unit.
4. Do it before the appraisal inspection. After is too late, and re-inspection will not fix it.
5. Then apply, with the lease, the rent proof you have, and the appraisal ordered in that order.
What this page does not do
This page is not an approval, a quote, a rate sheet, or a commitment to lend. Nothing here is a guarantee that your file will price or size the way the illustration does — the figures in the illustration are invented for arithmetic, not drawn from a real file.
It does not tell you the DSCR your property will produce, the rate you will be offered, or the appraised value you will receive. It does not cover prepayment structures, closing costs, entity formation, title, or insurance requirements. It does not address the reserve, asset, credit-event or property-type requirements that also have to be satisfied — a file can clear the lease question and still fail elsewhere.
It does not tell you whether a term lease is enforceable in your state, what notice you owe an existing tenant before changing their tenancy, or whether local rent regulation limits what you can put in the new lease. Those are questions for your attorney and your municipality, not for a lender's guideline page.
And it does not settle your specific file. The month-to-month cap is written clearly enough to plan around, but the interaction between your credit, your experience, your property type and your transaction type decides the governing number. Bring us the documents you actually have and we will tell you which one governs.
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.