DSCR Loans and Vacancy: How Lenders Calculate Income When Your Property Is Empty

If you've ever tried to finance a rental property that's sitting vacant, you already know the anxiety. No tenant means no income — and no income means your DSCR ratio looks like a zero. But here's what most investors don't realize: vacancy doesn't automatically kill your DSCR loan. In fact, most DSCR lenders have specific protocols for underwriting vacant properties, and understanding those protocols is the difference between a denial and a funded deal.

I've seen investors walk away from perfectly good acquisitions because they assumed a vacant property couldn't qualify for DSCR financing. That's leaving money on the table. Let me walk you through exactly how lenders handle vacancy — and how you can position your deal to get approved.

How DSCR Lenders Think About Income

Before we talk about vacancy specifically, you need to understand the two income buckets DSCR lenders work with:

Actual Rent (Lease Income): This is the rent a tenant is currently paying under an active lease. It's verifiable, it's contractual, and lenders love it. If you have a signed lease showing $2,200/month, that's what goes into the numerator of your DSCR calculation.

Market Rent: This is the appraiser's opinion of what the property could rent for based on comparable rentals in the area. It comes from the Form 1007 Single Family Comparable Rent Schedule — a standardized appraisal form that every DSCR lender requires.

Here's the critical rule most investors miss: DSCR lenders almost always use the lesser of actual rent or market rent. If your tenant is paying $2,500/month but the appraiser says market rent is $2,100, your DSCR calculation uses $2,100. This protects the lender against inflated or unsustainable lease terms.

The 1007 Rent Schedule: Your Best Friend When the Property Is Vacant

When a property is vacant, there's no lease income. The entire DSCR calculation hinges on the 1007 rent schedule — and this is where deals are won or lost.

The 1007 form is completed by the appraiser as part of the standard appraisal. The appraiser identifies three comparable rental properties (not sales comps — rental comps) and estimates what your subject property would rent for on the open market. This figure becomes your qualifying income.

What Makes a Strong 1007

Not all 1007s are created equal. Here's what strengthens your market rent opinion:

• Tight comparable distance. Rental comps within 0.5 miles in urban areas, 1-2 miles in suburban areas. The closer, the better.
• Similar unit size and condition. A 3-bed/2-bath comp supports a 3-bed/2-bath subject. Don't expect a studio comp to support a 4-bedroom market rent.
• Recent lease dates. Comps with lease start dates within the last 6 months carry the most weight.
• Consistent rent range. If your three comps show $1,800, $1,850, and $1,900, the appraiser will confidently land around $1,850. If they show $1,400, $1,800, and $2,300, expect the appraiser to be conservative.

When the 1007 Comes in Low

This happens more than you'd think, and it can crater a deal. Say you're buying a renovated duplex expecting $1,400/unit ($2,800 total), but the appraiser finds comps suggesting $1,150/unit ($2,300 total). That $500/month difference could drop your DSCR from 1.25 to 1.02 — potentially below the lender's minimum.

What you can do:

1. Provide the appraiser with rental comps upfront. Before the appraisal, give your loan officer a list of comparable rentals in the area with lease amounts. Most appraisers appreciate this — they're not trying to lowball you, they just need data.
2. Include a signed lease, even if the tenant hasn't moved in yet. If you have a signed lease at $1,400/unit with a move-in date 30 days out, most lenders will use lease income instead of market rent.
3. Request a reconsideration of value. If the 1007 comes in low, you can submit additional rental comps to the appraiser and request a revision. This works about 30-40% of the time in my experience.

Vacant Property Underwriting: The Lender Playbook

Different lenders handle vacancy differently, but here's the general framework:

Scenario 1: Property Is Vacant at Application

Most DSCR lenders will proceed with a vacant property. They'll order the appraisal with the 1007 rent schedule, and the market rent becomes your qualifying income. However, expect these additional requirements:

• Higher DSCR minimum. Some lenders bump their minimum DSCR from 1.00 to 1.10 or 1.15 for vacant properties. The logic: if there's no lease in place, there's more risk that the market rent is optimistic.
• Reserves requirement. Many lenders require 6-12 months of PITIA (principal, interest, taxes, insurance, and association dues) reserves for vacant properties, compared to 3-6 months for occupied ones.
• Rent-ready condition. The property must be in rent-ready condition at closing. Lenders don't want to finance a vacant property that needs $30,000 in rehab before it can generate income. The appraiser will note the property's condition, and if it's not move-in ready, expect pushback.

Scenario 2: Property Is Occupied but Lease Is Expiring

This is more common than true vacancy, and it's handled differently. If the current lease expires within 30-60 days of closing, some lenders treat it similarly to a vacant property and fall back to market rent. Others will accept the current lease if the tenant intends to renew.

Pro tip: Get a lease renewal letter signed before applying. Even an informal email from the tenant confirming they plan to renew at the same rate can satisfy most lenders. A signed renewal agreement is even better.

Scenario 3: Multi-Unit Property with Partial Vacancy

Here's where it gets interesting. Say you're financing a fourplex: three units occupied at $1,200/month each, one unit vacant. How does the lender calculate income?

Most lenders use a blended approach:

• Occupied units: Use the lesser of actual rent or market rent (per the 1007) for each occupied unit
• Vacant unit: Use market rent from the 1007

So if your three occupied units have leases at $1,200 and market rent is $1,150, the lender uses $1,150 × 3 = $3,450 for those units. The vacant unit uses market rent of $1,150, giving you total qualifying income of $4,600/month.

Key nuance: Some lenders apply a vacancy factor — typically 5-8% — across all units, even the occupied ones. This means they'll reduce your total income by 5-8% to account for future turnover. If your lender applies a 5% vacancy factor to $4,600, your qualifying income drops to $4,370. That's $230/month that could affect your DSCR.

Not all lenders use a vacancy factor. If your deal is borderline, ask your loan officer specifically whether the lender applies one. If they do and your DSCR is tight, consider a lender that doesn't.

Real Scenarios: How Vacancy Affects Your DSCR

Let me walk through a real-world example to show how this plays out.

The Deal

• Property: Single-family rental, 3-bed/2-bath
• Purchase price: $285,000
• Loan amount: $213,750 (75% LTV)
• Interest rate: 7.75%
• Monthly PITIA: $1,780 (principal + interest: $1,530, taxes: $140, insurance: $85, no HOA)

Scenario A: Occupied with Lease at $2,100/month

Market rent per 1007: $2,050

Qualifying income: $2,050 (lesser of actual vs. market)

DSCR: $2,050 ÷ $1,780 = 1.15

Result: Approved at most lenders (minimum 1.00-1.15 typical)

Scenario B: Vacant Property

Market rent per 1007: $2,050

Qualifying income: $2,050 (market rent only)

DSCR: $2,050 ÷ $1,780 = 1.15

Result: Same DSCR, but lender may require additional reserves (6-12 months PITIA = $10,680-$21,360 in liquid assets)

Scenario C: Vacant with Low 1007

Market rent per 1007: $1,750

Qualifying income: $1,750

DSCR: $1,750 ÷ $1,780 = 0.98

Result: Below 1.00 DSCR — denied at most lenders. Some lenders offer "no-ratio" or sub-1.0 DSCR programs, but expect a rate premium of 0.50-1.00% and LTV capped at 65-70%.

How to Save Scenario C

1. Get a signed lease at $1,825+/month before closing. This overrides the low 1007 and gives you a DSCR of 1.025 — enough for lenders with a 1.00 minimum.
2. Increase your down payment. Going from 75% to 70% LTV reduces your monthly PITIA to approximately $1,680, giving you a DSCR of $1,750 ÷ $1,680 = 1.04.
3. Buy down the rate. Paying 1.5-2 points to reduce the rate from 7.75% to 7.25% drops your payment enough to clear the 1.00 threshold.
4. Find a lender with sub-1.0 DSCR programs. Several non-QM lenders now offer programs down to 0.75 DSCR, with pricing adjustments. You'll pay more, but the deal gets done.

Market Rent vs. Actual Rent: The Strategic Calculation

Here's something experienced investors use to their advantage: you can sometimes choose which income figure the lender uses by timing your lease strategically.

If market rents in your area have risen significantly but your current tenant is on a below-market lease, the 1007 market rent might actually be higher than your actual rent. In this case, being vacant at application could give you a higher qualifying income than being occupied.

Example:

• Current lease: $1,600/month (signed 18 months ago)
• Current market rent per 1007: $1,950/month

If the property is occupied, the lender uses the lesser of actual vs. market = $1,600. If the property is vacant, the lender uses market rent = $1,950. That's a $350/month difference in qualifying income, which could be the difference between approval and denial.

I'm not suggesting you evict tenants to game the system. But if you're acquiring a property with a below-market lease that's expiring soon, it may be strategically better to close after the tenant vacates and let the market rent carry your DSCR.

Short-Term Rental Vacancy Considerations

If you're using a DSCR loan for a short-term rental (Airbnb, VRBO), vacancy is handled completely differently. Instead of a 1007 rent schedule, lenders use one of two methods:

1. 12-month trailing income from AirDNA, Mashvisor, or similar platforms. The lender pulls projected income data from a third-party STR analytics platform.
2. Actual STR income from the past 12 months (if the property has operating history), documented through platform statements or Schedule E.

STR income inherently includes vacancy — if the property was booked 75% of nights, the income already reflects that 25% vacancy. Lenders don't typically apply an additional vacancy factor on top of STR income projections, but they do tend to use more conservative occupancy assumptions.

Watch out: Some DSCR lenders don't allow STR income at all and will only underwrite based on long-term market rent. If you're buying a property specifically for STR use, confirm with your lender upfront that they'll use STR income for qualification.

Vacancy Red Flags That Trigger Lender Scrutiny

Not all vacancy is treated equally. Here are situations that make lenders nervous:

• Extended vacancy (6+ months). If the property has been vacant for a long time, lenders wonder why. Is the market soft? Is the property defective? Expect more questions and potentially a lower market rent estimate.
• Vacancy in a declining market. If local rents are falling, lenders may apply a discount to market rent or use the low end of the comp range.
• Commercial vacancy in mixed-use. If the commercial unit in a mixed-use property is vacant, some lenders won't count any commercial income in the DSCR calculation, even market rent. This is a deal-specific issue — check with your lender.
• Newly constructed/converted property with no rental history. Market rent is purely speculative here. Some lenders require a pre-lease (signed lease before closing) for new construction.

Practical Tips for Getting Approved with a Vacant Property

After hundreds of deals involving vacant properties, here's my playbook:

1. Always provide rental comps to the appraiser. Don't leave the 1007 to chance. Pull active and recently leased comps from Zillow, Rentometer, or your property manager and submit them through your loan officer.

2. Get a lease signed before closing if possible. Even a 6-month lease removes the vacancy risk entirely from the lender's perspective. Many property managers can place a tenant within 2-3 weeks.

3. Show reserves. Vacant property + strong reserves = confidence. If you have 12+ months of PITIA in liquid assets, many lenders will overlook vacancy concerns.

4. Choose your lender based on vacancy policy. Not all DSCR lenders treat vacancy the same way. Some require 1.15+ DSCR for vacant properties while others hold the same 1.00 minimum. Shop specifically for vacancy-friendly lenders.

5. Document the property's rental potential. Professional photos, a market analysis from a local property manager, or comparable rental listings in the area all help support your deal in underwriting.

6. Consider a rate buydown over a larger down payment. If your DSCR is borderline, buying down the rate reduces your monthly PITIA directly, improving your ratio more efficiently than increasing your down payment in many cases.

The Bottom Line

Vacancy is a speed bump, not a roadblock. DSCR lenders have well-established processes for underwriting vacant properties through market rent analysis. The key is understanding how your specific lender handles vacancy — their minimum DSCR for vacant properties, whether they apply a vacancy factor, and what reserves they require.

The investors who struggle with vacant property DSCR loans are the ones who treat the process passively — they apply, hope for the best, and panic when the 1007 comes in low. The investors who succeed are proactive: they provide rental comps, secure leases before closing when possible, and choose lenders whose vacancy policies align with their deal structure.

Your property doesn't need a tenant to qualify for a DSCR loan. It just needs to demonstrate that it can support one — at a rent level that covers your debt service. Position your deal to show that, and vacancy becomes a non-issue.