Why Form 1007 Does Not Work for Short-Term Rental Appraisals

You need an appraisal on a short-term rental property. You send out the order on Form 1007. And then you wait. Nobody takes it.

This is what actually happens across the DSCR and non-QM lending space. Lenders order short-term rental appraisals the same way they would any conventional rental, with a 1004 and a Form 1007 attached. Appraisers see the order, recognize that Form 1007 is the wrong solution for STR income analysis, and decline. The ones who understand the liability are not going to risk their license using a form that was never built for this assignment type.

The result is a shrinking pool of appraisers willing to take these orders at all, and lenders stuck wondering why they cannot get the appraisal done. The confusion is understandable, but the fix starts with ordering correctly. Here is what is going wrong and what to ask for instead.

What Form 1007 Was Actually Built For

Form 1007, officially called the Single-Family Comparable Rent Schedule, was designed by Fannie Mae for one specific purpose: to support the qualification of long-term rental income on conventional conforming loans.

The form captures monthly rent from comparable rental properties in the subject's market. An appraiser identifies three to six rental comparables, documents their monthly rent, and provides an opinion of market rent for the subject property. That opinion helps the lender determine whether rental income can be counted toward borrower qualification under Fannie Mae and Freddie Mac guidelines.

The entire structure assumes a traditional lease arrangement: a tenant pays a fixed monthly amount, typically for a year or more. The form asks for monthly rent. It compares properties based on monthly rental rates. The conclusion is an opinion of monthly market rent.

This works well for the conventional rental market it was built to serve. A single-family home rented on a 12-month lease generates predictable, documented monthly income. Form 1007 captures that cleanly.

Why Lenders Keep Asking for It on STR Appraisals

The confusion started in 2018 when Fannie Mae updated its selling guide to allow rental income from short-term rentals under certain conditions. Lenders saw the update and assumed the existing rental income workflow would carry over. Rental income is rental income, right?

Not quite. The selling guide update allowed STR income to be considered, but it did not specify how that income should be documented in an appraisal. That distinction got lost as lenders adapted their existing processes.

Many started ordering STR appraisals the same way they ordered any other rental property appraisal: a 1004 with a 1007 attached. Appraisers received these orders and, in good faith, tried to complete them as instructed. Some filled out the form using monthly equivalents of nightly rates. Others averaged annual STR income into a monthly figure. Both created problems.

Most lenders were not cutting corners. They were operating on a reasonable interpretation of the policy change. But without clear direction on how STR income should be documented, the industry filled that gap with the tools it already had.

The Problem With Using Form 1007 for STR Income

The Form Was Built for Monthly Rent, Not Nightly Rates

Short-term rental income does not work like long-term rent. An STR property generates income based on nightly rates, occupancy percentages, seasonal demand, platform fees, and operating expenses that are substantially higher than a traditional rental.

A vacation rental in a beach market might generate strong income during summer and very little in winter. A mountain cabin near a ski resort operates in reverse. Platform performance, local regulations, property management quality, and market saturation all affect income in ways that simply do not apply to a long-term tenant on a fixed lease.

The Form 1007 does not have any fields for nightly rates. It does not capture occupancy percentages or seasonality. It does not account for the higher operating costs of STR properties, including platform fees, frequent cleaning, utilities, maintenance, and management. The form was not designed for this income model, and forcing STR income into it strips out the context lenders need to make sound underwriting decisions.

What Fannie Mae Has Said About This

Fannie Mae has been clear: Form 1007 should not be used for short-term rental income analysis. Using the form this way creates a misleading appraisal report because it implies a level of income stability and predictability that does not exist with STR properties.

Appraisers have been encouraged through industry channels to decline assignments that require them to use Form 1007 for STR income. This is not appraisers being difficult. It is appraisers protecting their licenses.

Several state appraisal boards have disciplined appraisers for misusing Form 1007 in STR appraisals. The violations typically center on misrepresentation: presenting income in a format that does not accurately reflect how it is generated. For an appraiser, that is a USPAP violation that can result in license suspension or revocation.

What This Means for Your DSCR Calculation

For lenders underwriting DSCR loans, this matters beyond compliance. A DSCR loan depends on the property's ability to generate enough income to cover debt service. If the appraisal presents STR income as a stable monthly figure without accounting for occupancy variation, seasonal trends, and operating expenses, the lender is underwriting to a number that does not reflect how the property actually performs.

The income methodology needs to match the income model. When it does not, the debt service coverage calculation loses its foundation.

What a Compliant STR Income Analysis Actually Looks Like

A compliant short-term rental income analysis is completed as a narrative addendum to the appraisal, separate from the property value conclusion. The appraiser is not valuing the property based on income. They are providing an analysis of income potential that the lender can use for underwriting.

That distinction matters. The appraiser's job is to deliver the data and methodology. What the lender does with that information is a separate step.

A proper STR income analysis includes:

• Comparable STR listings and performance data from the subject's market
• Nightly rate analysis based on property type, size, location, and amenities
• Occupancy rate analysis supported by market data and platform performance
• Seasonal variation and how it affects annual income
• Operating expense context to help the lender understand the cost structure of STR properties
• A projected annual income range with supporting methodology

One thing worth keeping an eye on: UAD 3.6, scheduled for implementation in November 2026, will bring additional changes to how rental income is reported in appraisals. The industry is moving toward more standardized income reporting that better reflects different property types and income models. If you have STR loans in your pipeline, it is worth understanding how those requirements may affect your process.

What Lenders Should Ask for Instead

If you are ordering appraisals for short-term rental properties, the engagement letter should specify that STR income be analyzed through a narrative addendum, not through Form 1007.

Work with appraisers who have documented competency in STR income analysis. This is a specialized skill set. Not every residential appraiser has experience analyzing short-term rental markets, and USPAP requires appraisers to be competent in the assignment type they accept. Asking about experience and methodology upfront saves everyone time.

Before underwriting, stress test the income analysis. Does the occupancy rate assumption align with market data? Are the operating expenses realistic for STR operations in that market? Is the property subject to local regulations that could affect rental ability? These are questions worth asking before the file ever gets to the underwriter's desk.

The goal is not a specific income number. The goal is a clear picture of how the property generates income so you can make an informed lending decision.

One reason STR income analysis is difficult is that reliable market data is hard to come by and expensive to access. Data sources like AirDNA carry significant subscription costs, which limits the pool of appraisers who regularly work in this space. Banks Technologies' STR Analysis Tool was built to address that gap directly, giving appraisers access to market-specific performance data, occupancy benchmarks, and expense analysis support so they can deliver well-supported, compliant income analyses.

Key Takeaways

• Form 1007 was designed for long-term monthly rental income and does not accommodate how short-term rental income is structured
• Fannie Mae has stated that using Form 1007 for STR income creates a misleading appraisal report
• STR income analysis should be completed as a narrative addendum, separate from the property value conclusion, with detailed support for nightly rates, occupancy, seasonality, and expenses
• The appraiser's role is to deliver data and methodology; underwriting decisions based on that analysis belong to the lender
• For DSCR lenders, an improper income methodology produces unreliable debt service coverage calculations
• Engagement letters should specify STR income analysis through narrative addendum and confirm appraiser competency in this assignment type
• UAD 3.6 in November 2026 will bring additional changes to rental income reporting standards

Frequently Asked Questions

Can Form 1007 be used for short-term rental appraisals?

No. Form 1007 was designed for long-term monthly rental income and does not have the structure to properly analyze short-term rental income, which is based on nightly rates, occupancy percentages, and seasonal performance.

What should be used instead of Form 1007 for STR income analysis?

STR income should be analyzed through a narrative addendum that includes comparable STR data, nightly rate analysis, occupancy projections, seasonal trends, and operating expenses specific to short-term rentals.

Why do lenders keep ordering Form 1007 for STR properties?

The confusion largely stems from a 2018 Fannie Mae selling guide update that allowed STR income to be considered but did not specify how it should be documented. Many lenders adapted existing workflows without realizing the form was not appropriate for this income type.

What is a DSCR loan and how does STR income affect it?

A debt service coverage ratio loan is underwritten based on the property's ability to generate enough income to cover the mortgage payment. STR income affects the calculation because it determines whether the property meets the required coverage ratio.

What is UAD 3.6 and how does it affect STR appraisals?

UAD 3.6 is an upcoming update to the Uniform Appraisal Dataset scheduled for November 2026. It will bring changes to how rental income is reported in appraisals, with more standardized requirements that better accommodate different property types and income models.

How can lenders make sure their STR appraisals are compliant?

Specify in the engagement letter that STR income should be analyzed through a narrative addendum. Confirm the appraiser has documented competency in STR analysis. Review the income methodology for market support and realistic assumptions about occupancy and expenses.

The Bottom Line

STR lending is not going away. The volume of these orders is growing, and the documentation gaps are becoming harder to ignore at the underwriting table.

What we keep seeing across lenders, appraisers, and AMCs is that most of the friction comes from the same place: the wrong form, ordered the wrong way, with no shared understanding of what the deliverable should actually look like.

That is fixable. It starts with the engagement letter. It continues with working alongside appraisers who know this assignment type. And it gets easier when everyone involved is clear on what the income analysis is actually supposed to do, which is inform the lending decision, not produce a number to plug into a formula.

If you are ordering STR appraisals and running into underwriting friction, the methodology is usually where to look first.

Reach out to see how Banks Technologies supports compliant STR income analysis, or stay tuned for our next post where we dig into what competent STR income analysis actually requires from the appraiser's side.