Investors think in projections — what a property will produce after improvements, rent increases, or repositioning. Underwriting thinks in documentation — what it produces now.
These questions cover the gap and how to work with it.
Quick answer
DSCR underwriting uses current documented rent or current market rent as assessed by an appraiser. Projected rent after renovation, planned increases, or repositioning does not count toward qualification.
Frequently Asked Questions
Can I qualify on projected rent?
No. Underwriting uses current documented rent or the appraiser's current market rent opinion. Projections do not count regardless of how reasonable they are.
Why don't lenders use projections?
Because they are unverifiable and depend on execution that has not happened. Lenders underwrite the property as it exists, not as it might be.
What about rent after a planned increase?
Not counted until the increase is in effect and documented. A lease amendment or new lease at the higher rent would be needed.
What about rent after renovation?
Not applicable to a DSCR loan on a stabilized property. Post-renovation value and rent apply to renovation financing, where after-repair value is part of the analysis.
Can I use a pro forma?
Pro forma statements are useful for your own analysis and appear in commercial transactions, but DSCR underwriting on residential property relies on current documented figures.
What if the seller provides projections?
Treat them as marketing. Verify against actual leases, actual collections, and independent market comparables before relying on them for your own analysis.
How do I handle a below-market rent roll?
Model at the current rents, since that is what underwriting will use. If your thesis depends on raising rents, that upside comes after closing rather than helping you qualify.
Can I buy, raise rents, then refinance?
Yes, and this is a common strategy. Once increased rents are documented and in effect, a refinance can capture the improved ratio — subject to seasoning requirements.
How long before increased rent counts?
Generally once the new lease is executed and in effect. Some lenders want payment history at the new rate. Ask about the specific requirement.
What about a property with expiring below-market leases?
Underwriting uses the current leases. The opportunity to raise rents at expiry is real but does not help you qualify today.
Does market rent count if it exceeds my lease?
Under a lower-of policy, no. The lease would be used. Under a market-rent policy it might. This is a lender-specific overlay worth confirming.
Can I use comparable properties' higher rents?
Only through the appraiser's analysis. If comparable properties genuinely rent higher, that should be reflected in the appraiser's market rent opinion — which is where to direct better comparable data.
What about seasonal or variable income?
Lenders typically annualize documented income rather than using peak figures. Projections of improved seasonal performance do not count.
How should I model a value-add deal?
Two ways: what the deal supports today for financing purposes, and what it could support after execution for your return analysis. Do not confuse the two.
What is the risk of underwriting on projections?
That you commit to a purchase the financing will not support. This is a common cause of deals falling apart after going under contract.
Do commercial deals treat projections differently?
Somewhat. Commercial underwriting reviews trailing actuals but may consider a stabilized pro forma in certain structures. Residential DSCR is stricter.
What documentation converts a projection into an actual?
An executed lease at the new rent, and often payment history demonstrating collection at that rate.
Should I ever buy based on projected rent?
You can, but finance it based on current rent. If the deal only works on projections, ensure you have the capital to carry it while you execute.
What is the most common projection mistake?
Assuming a renovation will produce a specific rent increase, then discovering the appraiser's market rent opinion does not support it.
How do I plan properly?
Underwrite the deal at current documented rent. Treat any improvement as upside you capture later through a refinance, not as something that helps you qualify now.
