Lender · Los Angeles CA · Member since 2026 · 32 posts · 5 votes
I came across an investor refinancing a duplex in Tucson with a loyal tenant who had been there six years. She never raised the rent much, so the lease sat about 300 dollars a month under what the place would fetch today.
She ran her numbers on market rent and figured the cash out was in the bag. The appraiser agreed on market rent, but the lender went with the lower figure, which was her lease.
The ratio came up short and she left money on the table. Being a nice landlord cost her at the closing table.
The lesson:
Many DSCR lenders qualify on the lower of the signed lease or the appraiser's market rent. It varies by lender, so ask before you apply.
It cuts both ways. A lease above market often gets trimmed down to the appraiser's number too.
Check your leases months before a refi. Renewing at market rent first can change the whole picture.
Has anyone had a refi come in short because of a below market lease, and what did you do about it?
A good DSCR Lender will generally be able to do up to 120 or 125% of the market rent on an under-market lease and vise versa, 120% or 125% of actual on an over-market lease
A good DSCR Lender will generally be able to do up to 120 or 125% of the market rent on an under-market lease and vise versa, 120% or 125% of actual on an over-market lease
Most will go with the lower rate since that is the actual cashflow. some may increase it like robin mentioned but they will also want to know more about your personal situation and if you have cash and if it is still cash flowing
Great post! There are a lot of work arounds on rental income when it comes to DSCR financing. It all really depends on the lender you work with.
There are some lenders that will allow you to use the higher lease agreement if you have 2 months of rent to support the lease, with no restrictions. Others will use the higher of the market rent, if the lease is lower.
This is why it is very important to provide accurate rent figures upfront.
This is where knowing the specific investor's guidelines can make a big difference. Just because the appraisal supports a higher market rent doesn't necessarily mean you can use that full amount to qualify.
Most programs are going to look at both the actual lease and the appraiser's market rent, with varying guidelines on which figure they can use.