Property rented below market rate
Can I get a DSCR loan if the current rent is below market?
An existing lease below market rent is a common situation — a long-term tenant who has not seen a rent increase in years is often the reason a property still cash-flows at all for its current owner. It can still be a drag on DSCR if the lease, not the market, is what gets used.
- DSCR rental loan using market-rent appraisal Where an existing lease is well below market, a market-rent appraisal can be used to reflect the property’s true earning potential rather than an outdated lease figure.
- Underwriting on the lease alone with no appraisal comparison A stale below-market lease used as the only rent figure can understate DSCR and either sink an otherwise-qualifying deal or price it worse than the property actually supports.
Lenders in the directory
No lender here publishes a rule for this
This is an underwriting judgment, not a published threshold. None of the 37 lenders in the directory states a policy on it, so there is no honest way to build a shortlist — and a list computed only from which products a lender writes would tell you nothing you could act on.
What matters here is how the file is presented rather than which lender receives it. The sections below cover that. When you are ready to approach lenders, the directory shows what each one does publish, with the date it was verified.
Why below-market rent shows up so often
Landlords frequently underprice a lease relative to current market rates, especially for a long-tenured, low-hassle tenant. It is a rational landlord decision and a common one — but a lender calculating DSCR off that lease figure is measuring the property’s current cash flow, not its market-rate potential.
How the appraisal can correct for this
A market-rent appraisal estimates what the property would rent for at current rates, independent of what the existing lease says. Some lenders use the higher of the two figures, or use the market-rent estimate outright on a purchase where the buyer intends to re-lease at market — the specific approach is a matter of lender policy, not a published, comparable figure across this directory.
Why this is not a filterable criterion
No lender here publishes a specific rule for how a below-market lease is treated relative to an appraisal, which is why this page does not filter the roster on it. What is worth doing instead is ordering the appraisal early and comparing both numbers before assuming the lease is the ceiling on the deal.
What changes at renewal or turnover
If the lease will renew or turn over to market rate soon after closing, that timeline is worth raising directly with the lender — some may weigh it differently than a lease with years remaining at the below-market rate.
What to have ready
- The current lease with its exact rent figure
- A market-rent comparison or appraisal, ordered proactively rather than waiting to be asked
- The lease’s remaining term and any upcoming renewal or turnover date
Questions
Will the lender use the market rent or the actual lease rent?
Should I raise the rent before applying?
Does a below-market lease hurt my credit or eligibility?
Terms used on this page
- Market Rent vs. Actual Rent — Market rent is an appraiser’s opinion of what a comparable unit should currently rent for. Actual rent is the contract rent stated in an existing lease. The two frequently differ, and which one a lender uses to qualify a loan depends on the lender’s policy.
- Debt Service Coverage Ratio (DSCR) — DSCR is a property’s gross monthly rent divided by its total monthly mortgage payment. A DSCR of 1.00 means the rent exactly covers the payment; 1.25 means rent exceeds the payment by 25%.
- Form 1007 (Single-Family Comparable Rent Schedule) — Form 1007 is a one-page appraisal addendum, ordered alongside the standard appraisal on a one-unit property, in which the appraiser identifies comparable rentals and reconciles them to a single opinion of the property’s market rent.