Underwriter used the appraiser's rent number instead of my signed lease, $250 lower per unit

Question

Triplex at $410k, owner-occupied, I'd take unit 1 and the two signed leases on units 2 and 3 are $1,400 each. The appraiser's rent schedule came back at $1,150 market rent per unit. Underwriting is now qualifying me on the $1,150 figure, so instead of $2,800 of gross rent I'm getting credited off $2,300, and after whatever haircut they apply it's the difference between this working and not. Two questions. Is the appraiser's opinion always the ceiling even with executed leases in the file, and what's the actual haircut, because I've seen 75% quoted everywhere and my loan officer said it depends on the program. There are maybe four other triplexes in this submarket, which I assume is part of why the rent schedule looks the way it does.

Rena Expert · Accepted Answer

Executed leases don't automatically override the appraiser's market rent. On agency products the rent schedule (the 1007 for a single unit, the 1025 operating income statement on a 2-4) is the document underwriting is built to rely on, and when the lease exceeds the appraiser's opinion most underwriters take the lower of the two. Going the other direction, a lease below market rent will usually cap you at the lease. So the asymmetry is real, and confirm the exact language of your program with your lender in writing rather than working off the general rule.

The 75% is standard on several products as a vacancy and maintenance factor, though FHA on a 3-4 unit runs a separate test where the net rent has to cover the full payment, and that test is a different animal from DTI. If you're in an FHA file, solve that before you argue about $250.

Quarry's reconsideration path is the right lever, and the version that works includes rented comparable 2-4 unit addresses with lease start dates, not Zillow rent estimates. Appraisers discard automated rent tools.

What you haven't raised is reserves. Several programs require months of principal, interest, taxes, insurance and any association dues in reserve on a 3-4 unit that they wouldn't ask for on a duplex, and that requirement is cash sitting in your account at closing, on top of down payment and closing costs. If the $250 gap is what's keeping this deal alive, check whether you also clear the reserve line, because people find that one at the worst possible moment. Also worth knowing that a thin rental comp set tends to show up again at refinance.

ryanmck27 · Answer

The 75% number you've seen is a vacancy and maintenance factor, and it's applied to whichever gross rent figure underwriting accepts, so you're getting hit twice here. $2,300 at 75% is $1,725 of qualifying income versus $2,100 off your leases. Which program you're in changes the whole calculation, though, so make your loan officer put the specific rule they're applying in writing.

carlos_nunez · Answer

Four comparable triplexes in the whole submarket is your real problem. The appraiser has to support market rent with rented comps of similar unit count, and when there aren't any they lean on 2-bed apartments in bigger buildings, which rent lower than a 2-bed side of a triplex with a yard and a basement. I'd ask for a reconsideration of value on the rent schedule specifically, with your own rent comps attached, including addresses and lease dates. It gets denied plenty of times, but a rent schedule is easier to move than a value opinion.

bmoreno23 · Answer

So the same thin comp set that gave you a low rent schedule is what a future appraiser looks at too. That's the part I'd be sitting with. Did the appraisal support the $410k value, or did the sales comps come from the same shallow pool?

Underwriter used the appraiser's rent number instead of my signed lease, $250 lower per unit

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