DSCR Loan on a Tenant-Occupied Rental: Which Rent Counts

You found a rental with a tenant already living there. Rent starts on day one. Good.

Your loan depends on a narrower question. Which rent goes into the DSCR math: the number on the lease, or the number the appraiser writes down?

This post covers 1-4 unit purchases: single-family homes, duplexes, triplexes and fourplexes. Five units and up are underwritten from a rent roll and a T-12. We cover that in what lenders read in a rent roll and T-12.

The rule: the lower of lease or market rent

Most DSCR lenders compare two numbers and use the smaller one. In a guide published in July 2026, Lendmire says this lower-of rule "trips up more investors than anything else" in DSCR appraisals.

It cuts both ways:

• Lease above market: the lender caps it at market rent. The extra rent counts for nothing.
• Lease below market: the lease amount counts. The appraiser's higher number doesn't rescue you.
• Lease at market: the two numbers match. No problem.

Total Quality Lending, in an October 2026 explainer, says a below-market lease can hold a file back even when the appraiser agrees the property could rent for more.

The rule is a lender convention, not a law. A Lendmire post published October 21, 2026 points out that DSCR loans are non-QM, so agency rules don't govern them. Lenders simply borrow the agency appraisal forms as rent documents. Each lender writes its own guideline. Ask yours before you write the offer.

For the ratio itself, see how to calculate DSCR.

Where the market rent comes from

On a DSCR purchase, the appraisal does two jobs. It sets the value and it sets the market rent.

On a single-family home the appraiser fills out Form 1007, which Fannie Mae's Selling Guide forms list calls the "Single-Family Comparable Rent Schedule." According to Lendmire's July 2026 guide, the rent for a 2-4 unit building comes from Form 1025.

The appraiser works from comparable rentals, not from your lease. Lendmire's October 23, 2026 guide on below-market tenants says the appraiser forms an independent opinion of rent and won't lower it just because your tenant pays less. The lender then decides how to weigh the two numbers.

The paperwork that proves the lease

On its own, a lease is just paper the seller handed you. Lenders want proof that it's real, that it's current and that the tenant pays it. On an occupied purchase, expect requests like these:

Fannie Mae's standard is a useful benchmark. In Announcement SEL-2023-09, published October 2023, Fannie required either a rent schedule that supports the lease income or evidence that the lease had taken effect, including proof of at least two months' rent received. Fannie reorganized its rental income guidance in Announcement SEL-2026-08, published September 2026. So check the current text, and remember that a DSCR lender doesn't have to follow it.

The cleanest payment proof is bank statements or a property manager's ledger showing deposits that match the lease. Cash rent with no paper trail is the weakest.

Below-market rent: the common trap

Long-term tenants often pay under market because the seller never raised the rent. That may be exactly why you like the deal, since the upside is obvious. The lender sees it the other way: today, the lower number counts.

Three things to know:

1. Future increases don't count yet. Lendmire's October 23, 2026 guide says underwriting generally won't credit a rent increase before it takes effect. It also says a signed renewal at documented market rent beats a verbal agreement.
2. The lease survives the sale. A February 2026 guide from Highpoint Land Company says the new owner takes on the old landlord's obligations, including the rent amount and the lease end date.
3. Very low rent draws a closer look. Lendmire's October 21, 2026 post explains that under the federal Protecting Tenants at Foreclosure Act, a lease counts as "bona fide" only if the rent isn't substantially below fair market rent. A relative paying token rent is the classic red flag.

Run the deal at the lease rent first. If coverage works at the lease, market rent is upside. If it only works at market rent, you need a plan before closing. That could mean more cash down, a renewal signed before closing, or a different property. Test both numbers in the calculator.

Month-to-month and verbal leases

Month-to-month is common on older rentals. The lease expired and the tenant kept paying.

It's usually workable. In its October 20, 2026 portfolio guide, Lendmire shows month-to-month units usually underwritten at market rent, with the old lease as supporting evidence. Lendmire's October 23 guide adds that this is common practice, not a published rule, and that some lenders treat it differently.

So don't assume. Get the lender's answer in writing before the appraisal is ordered.

Verbal leases are harder. With no written terms, there's nothing to compare against the appraisal and nothing for the tenant to confirm. Fix it before closing. Ask the seller to sign a written lease with the tenant at the current terms, or a renewal at market rent. Local law decides whether the rent can change and how much notice is needed. Lendmire's October 23 guide notes that on a month-to-month tenancy you may be able to serve a notice, but local rules govern.

Security deposits that don't match

The lease shows one deposit. The seller's records show another. Or the seller can't find the deposit at all.

This matters because once you close, the deposit is your liability. State law sets the transfer rules. The New York Attorney General's guidance, published in 2023, says a selling landlord must transfer deposits to the new owner within five days or return them to the tenants. Massachusetts guidance on Mass.gov, last updated January 13, 2021, says the new landlord owes the deposit back to the tenant even if the former landlord never handed it over.

Reconcile every deposit before closing. Make sure each one is credited to you on the settlement statement. A mismatch also tells the underwriter the seller's records are loose, and that makes every rent figure harder to trust.

When the tenant won't sign an estoppel

An estoppel is a short statement, signed by the tenant, that confirms the facts of the tenancy. A February 2025 article from Rollins Legal lists the usual items:

• the lease exists and is in force
• neither side is in default
• the amount of the security deposit
• the tenant has no claims or offsets against rent
• any rent paid in advance

Once the tenant signs, they can't later claim different facts. Estoppels are routine in commercial deals. Rollins Legal calls skipping them "an unfortunate oversight" in tenant-occupied residential purchases.

Tenants refuse for ordinary reasons. They don't know you. They worry it changes their lease. Or they're in a dispute with the seller. Your options:

• Read the lease. A March 2026 article from Tobener Law says a tenant must sign when the written lease requires it, and that refusing is a breach of the lease.
• Keep it simple. Use one page in plain language, with the facts already filled in from the lease, so the tenant only confirms or corrects them.
• Ask early. Make estoppel delivery a seller obligation in the purchase contract, with a deadline.
• Have a backup. Ask your lender what it will accept if the tenant refuses, such as a seller certification plus bank-statement rent proof. The answer varies by lender.

A refusal is information too. A tenant who won't confirm the rent may be paying a different amount.

Write it into the purchase contract

Most of these problems can be fixed if you catch them before closing. Write these into the contract:

1. Copies of every lease, addendum and renewal, delivered by a set date.
2. Proof of rent payments for recent months.
3. A security deposit ledger, with deposits credited to you at closing.
4. A signed estoppel from every adult tenant.
5. A due diligence contingency tied to those documents.

Send the whole package to your lender with the application, not after the appraisal comes back. Check the full list in DSCR loan requirements.

Send the file before you're deep in the deal

Funded Capital makes DSCR loans on 1-4 unit rentals in 45 states (excluded: VT, UT, OR, SD, ND) and closes in 5-10 business days, depending on the deal. Send the lease, the rent proof and the deposit records with your application, so rent questions come up early instead of at the appraisal.

Terms are subject to underwriting, appraisal, title, and insurance.

Apply Now or call (305) 857-5620.