A tenant in place means rent from day one. It also means the lease, not just the house, becomes part of your loan file.
In short: You can buy a tenant-occupied rental with a DSCR loan, and the existing lease can often be used to qualify. Many programs compare the lease rent to the appraiser's market rent and use the lower figure, though some allow the lease rent when it is higher and well documented. A below-market lease can pull DSCR under 1.0x even when the property would rent for more, so review the lease before you sign the purchase contract. At closing, the tenant's security deposit and any prepaid rent are typically credited to you as the buyer.
On a purchase, the appraiser completes a rent schedule showing what similar homes rent for. The lender then compares that market rent to the lease you are inheriting.
The rule depends on the program. The most common is the lower of the two. Some programs use the lease when it is higher, if you can show it is real and being paid. A few will use market rent on a vacant or month-to-month unit.
| Situation | Rent often used | What to watch |
|---|---|---|
| Lease at market | Lease or market (same) | Straightforward |
| Lease below market | Lease rent on lower-of programs | DSCR can come in low |
| Lease above market | Market rent, or lease on some programs | Proof of payment may be required |
| Month-to-month tenant | Often market rent; varies | Ask how the program treats it |
Ask the seller for every lease, amendment and side agreement during due diligence. Look for the rent amount, end date, renewal options, who pays utilities, pet or parking fees and any rent concessions.
Concessions matter. A lease that says $1,900 but gives two months free is effectively a lower rent, and lenders may count it that way.
An estoppel certificate is a short statement signed by the tenant confirming the rent, deposit, lease dates and that there are no undisclosed agreements. It protects you from surprises after closing.
Not every residential purchase uses one, and requirements vary by program and property size. They are more common on 2–4 unit and 5+ unit purchases. Even when not required, a signed tenant confirmation is cheap protection.
This example is illustrative and not a quote. An investor buys a house for $280,000 with a tenant paying $1,850 a month. The appraiser's market rent is $2,150. At 80% LTV the loan is $224,000. At a sample rate of 7.25% on a 30-year fixed, principal and interest is about $1,528. With $450 for taxes and insurance, the payment is about $1,978.
On a lower-of program, the lease rent is used, and DSCR is about 0.94x ($1,850 / $1,978). On market rent, it would be about 1.09x. The investor could put more down, use a program that allows a sub-1.0 ratio, or negotiate the price with the below-market lease in mind.
When the property changes hands, the seller usually credits the buyer for the tenants' security deposits, since you take on the duty to return them. Prepaid rent for days after closing is typically credited to you as well.
These credits show up on the settlement statement. Deposit handling rules vary by state, so confirm the details with your title company or attorney.
If you buy with a short-term loan or cash and refinance into a DSCR loan later, the program may require a seasoning period before it uses the new appraised value. Seasoning rules vary by program.
A lease in place at refinance makes the file simpler. If you raise rent at renewal, keep the new lease and proof of payment, since some programs will use it.
Send the purchase contract, current leases, the seller's rent roll and a few months of rent payment history if available. We review the scenario against the lease and likely market rent and come back with 2–3 options.
Usually yes. Many programs use the lower of the lease rent and the appraiser's market rent. Some allow a higher lease rent with proof it is being paid.
On a lower-of program, the lender will likely use the lower lease rent, which can reduce DSCR. Options include more cash down, a sub-1.0 DSCR program or a price adjustment.
It depends on the program and property. Estoppels are more common on multi-unit purchases, but they are useful on any tenant-occupied deal.
Typically the buyer receives a credit for it on the settlement statement, since the buyer becomes responsible for returning it. State rules vary.
Yes. Lenders often use market rent from the appraisal in that case, but it varies by program.
Not usually, but the appraiser needs access to the unit. Coordinate with the seller and tenant early so the inspection is not delayed.
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