Short-Term Rental Income for DSCR Loans
Short-Term Rental Income for DSCR Loans
DSCR loans are intended exclusively for investment property transactions where the qualification is based solely on the cash flow from the subject property. This asset-based approach is uniquely suited for addressing Short-Term Rental Income for DSCR Loans (STRs), which are defined as properties leased on a nightly, weekly, monthly, or seasonal basis.
General Eligibility and Program Restrictions
DSCR guidelines confirm that Short-Term Rental income is acceptable for both purchase and refinance transactions. However, STRs carry specific geographic and property restrictions.
A. Compliance and Occupancy Requirements
- Business Purpose: The property must be a non-owner-occupied, income-producing investment property used for business purposes.
- Legality: The STR income must be legally permitted and considered common for the area, which must be confirmed by the appraisal and/or property location.
- Third-Party Verification: Evidence is often required from a third-party vendor (such as Property Guard or Vrolio) validating that the governing municipality allows the property to be rented as an STR. The property cannot have any STR restrictions from the HOA, County, or City.
B. Geographic and Property Type Limitations
- Geographic Restrictions: Short-Term Rentals are explicitly ineligible in the five (5) New York City Boroughs (Manhattan, Brooklyn, The Bronx, Queens, and Staten Island) across multiple Non-QM programs.
- Property Types: While typically permitted on Single-Family Residences, some DSCR program series (like the Edge Investor Classic/Elite for STR refinances) state that 2–4-unit properties and condos are ineligible.
Documentation and Calculation for Purchase Transactions
For purchases, qualification relies on projections of rental income, as historical data is usually unavailable. We rely on third-party market data reports and appraiser forms.
A. Utilizing AirDNA (Rentalizer) Reports
AirDNA reports are frequently used for all STR purchase transactions.
- Income Calculation: The qualifying income is determined by calculating 80% of the estimated annual revenue derived from the AirDNA report and dividing that figure by 12 months.
- Report Requirements: The AirDNA Rentalizer report must meet specific criteria, including having a 12-month forecast period from the Note date, an occupancy rate greater than 50%, and listing four comparison properties.
- Appraisal Requirement: When using an AirDNA report for qualifying income, the Fannie Mae Form 1007 (comparable rent schedule) is not required.
B. Utilizing Appraisal Forms (1007/1025)
Alternatively, STR income may be documented through the appraisal process:
- Source: The qualifying income can be 80% of the STR income reported on appraisal Form 1007 or 1025.
- Appraiser Requirement: The appraiser must cite the third-party source and formula used to calculate the STR income if an AirDNA Rentalizer was not provided.
Documentation and Calculation for Refinance Transactions
For properties that have already been operating as Short-Term Rentals (refinances), we require documentation of historical cash flow to determine the qualifying income.
- Lookback Period: Refinances require the actual STR income to be averaged over the most recent 12-month period preceding the application.
- Income Calculation: The income is calculated based on average deposits over a 12-month history, including zero deposit months. The qualifying income is generally determined as 80% of the actual receipts (gross rents).
- Documentation: This history must be supported by the most recent 12-month income statement from a third-party management company or online marketplace. Documentation from vendors such as Airbnb, VRBO, or HomeAway are acceptable.
- Refinance Restrictions: Documentation must clearly identify the subject property by address, as a Property ID number alone may not be sufficient.
Specialized DSCR Overlays for STRs
Due to the variable nature of STR income, DSCR loan programs impose tighter restrictions on these transactions regarding cash flow, leverage, and fees.
| Requirement | DSCR Program Guidelines |
| Minimum DSCR Ratio | The minimum DSCR required for STRs is typically higher than for long-term rentals. The Horizon DSCR program requires a minimum DSCR of 1.15x, while the River DSCR program requires a minimum DSCR of 1.25x. |
| Maximum LTV (Leverage) | The maximum Loan-to-Value (LTV) is significantly reduced. DSCR programs generally cap STR transactions at Max 75% LTV. The River DSCR program requires a Maximum 60% LTV for all DSCR transactions using STR income to qualify. |
| Credit Score | Some programs require a higher minimum credit score. Our Connect limits STRs to a minimum 700 FICO score. |
| Vacancy/Expense Factor | DSCR calculations for STRs typically apply a 25% vacancy factor. For refinancing properties previously rented on a short-term basis, a 25% vacancy factor still applies. |
| Ineligible Use | Some specific DSCR product guidelines, such as the Edge Investor Classic/Elite, explicitly state that Short Term Rental Income is not permitted on the subject property. These programs mandate the use of long-term annual rents to qualify. |
FAQ's
Yes, some programs allow condos. However, under specific DSCR program guidelines (like the Edge Investor Classic/Elite for STR refinances), 2–4-unit properties and condos are ineligible.
Short-Term Rentals are explicitly ineligible in certain areas, including the five New York City Boroughs (Manhattan, Brooklyn, The Bronx, Queens, and Staten Island).
Yes, evidence is required from a third-party vendor (like Property Guard or Vrolio) validating that the governing municipality allows the property to be rented as an STR.
A minimum FICO score of 700 is typically required for transactions utilizing short-term rental income.
Short-Term Rentals are often limited to a maximum 75% LTV. Some programs restrict this further, capping it at 60% LTV.
For refinances, the income is calculated based on 80% of the actual receipts (gross rents) averaged over the most recent 12-month history, including zero deposit months.
The qualifying monthly income is calculated as 80% of the estimated annual revenue from the AirDNA report, divided by 12 months.
For purchases, lenders generally use third-party projections, such as the AirDNA Rentalizer report, to estimate the future rental income.
STR transactions usually require a higher minimum DSCR, often set at 1.15. Some programs require a minimum of 1.25.
Yes, STR income is permissible for DSCR loans, as this product is designed for investment properties, including short and long-term rentals.
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