# DSCR Loans for Short-Term Rentals: What Every STR Investor Needs to Know > DSCR loans are the preferred financing vehicle for short-term rental investors — but lenders calculate coverage differently for STRs. Here's exactly how it works and what you need to qualify. Canonical: https://www.underwriteapp.com/blog/dscr-loan-short-term-rental If you've financed more than one rental property, you've probably hit a wall with conventional mortgages. Most lenders cap you at 10 financed properties. Many require two years of self-employment income. Some will count projected rental income — but only under strict conditions, with haircuts that make the numbers look worse than they are. DSCR loans were built to fix this. And for short-term rental investors specifically, they've become the go-to financing structure over the last several years. This guide explains exactly how DSCR loans work for STRs, how lenders calculate the coverage ratio, what you need to qualify, and how to present your deal in the best light possible. --- ## What Is a DSCR Loan? DSCR stands for Debt Service Coverage Ratio. It's a measure of a property's ability to pay for itself. The formula is simple: > **DSCR = Net Operating Income ÷ Annual Debt Service** If a property generates $60,000 in NOI and your annual mortgage payments (principal + interest + taxes + insurance) total $50,000, your DSCR is 1.20. Most DSCR lenders want to see a ratio of **1.25 or higher** for a conventional loan approval. Some non-QM (non-qualified mortgage) lenders will go as low as 1.0 — meaning the property barely covers its debt — for borrowers with strong credit and larger down payments. **Why DSCR loans matter for investors:** Because qualification is based on the property's cash flow, not your personal income. Your W-2, your DTI, your business revenue — none of it matters. Only the deal matters. That's why real estate investors who have built portfolios of five, ten, or twenty properties almost universally favor DSCR financing. --- ## The Problem: How Lenders Calculate DSCR for STRs Here's where it gets complicated for short-term rental investors. Long-term rental DSCR is straightforward: the lender looks at a lease or market rent survey, applies a standard vacancy factor (usually 25%), and calculates NOI. **Short-term rental DSCR is not standardized.** Different lenders handle it very differently: | Lender Approach | What They Use for Income | Risk Level | |----------------|--------------------------|------------| | AirDNA rental estimate | Platform-generated revenue projection | Moderate | | 12-month trailing booking revenue | Actual historical income (if available) | Low | | 75% of market rent (LTR equivalent) | Conservative — often undervalues the property | High (undersells your deal) | | Appraiser STR income schedule | Market-comparable STR revenue from comps | Moderate-Low | If your lender uses LTR market rent to calculate DSCR on a property that earns 2–3x that on Airbnb, you may not qualify — even though the property cash flows beautifully under STR operations. **The solution:** Know what your lender uses before you go into contract. And have clean documentation of projected or actual STR revenue ready to submit. --- ## What DSCR Lenders Want to See from STR Investors ### 1. A Third-Party Revenue Estimate Most DSCR lenders accepting STR income require a third-party rental projection — not just your spreadsheet. The most commonly accepted sources: - **AirDNA Rentalizer report** (address-level revenue estimate) - **Rabbu estimate** (similar format, sometimes accepted) - **Appraiser income approach** using STR comps If you're buying a property with an existing STR track record (active listings on Airbnb or Vrbo), 12 months of historical booking data is even better. Pull it from the platform or request it from the seller. ### 2. An Expense Model That Accounts for STR-Specific Costs STR operating expenses are materially higher than long-term rental expenses. A typical STR incurs: - **Platform commissions:** 3–5% of gross revenue (Airbnb host fee) - **Property management:** 20–35% of gross if professionally managed - **Cleaning:** $50–$250 per stay depending on property size - **Consumables and supplies:** $50–$150/month - **Furnishing reserve:** 5–10% of gross revenue (capital replacement) - **Insurance:** STR-specific policies run $1,500–$5,000/year depending on coverage and market A lender who doesn't account for these costs will produce a DSCR calculation that looks better than reality. A lender who overcorrects will kill deals that genuinely work. You need an expense model that's defensible. ### 3. A Lender-Ready Analysis Package Some DSCR lenders — especially portfolio lenders and non-QM shops — want to see more than a spreadsheet. They want a clean package that shows: - Projected gross revenue with source documentation - Operating expense breakdown by category - NOI calculation - DSCR at current offer price - Sensitivity table showing DSCR at different occupancy scenarios Underwrite generates this package automatically. When you run a deal in Underwrite, the output includes a [DSCR lender package](/features) — a formatted report with all the documentation a DSCR lender needs to underwrite your deal. --- ## How to Improve Your DSCR Before Submitting to a Lender If your DSCR comes back below the lender's minimum, you have a few levers: **Increase the numerator (NOI):** - Negotiate a lower purchase price - Identify revenue-optimizing opportunities the current owner missed (better listing photos, pricing optimization, seasonal rate strategy) - Reduce management costs by self-managing or negotiating lower PM fees **Decrease the denominator (debt service):** - Increase your down payment (less principal = lower monthly payment) - Buy down the rate with points - Shop lenders — DSCR rates vary by 50–100 basis points across lenders **Change the comparison:** If your lender is using LTR market rent to calculate DSCR, push back. Provide the AirDNA report and request that they use STR-projected income instead. Many lenders will accommodate this if you have clean documentation. --- ## DSCR Loan Terms: What to Expect DSCR loans are non-QM products. Terms vary more than conventional mortgages. | Term | Typical Range | |------|--------------| | Interest rate | 0.5–1.5% above conventional (varies by LTV, DSCR, credit score) | | Minimum DSCR | 1.0–1.25 (lender dependent) | | Down payment | 20–30% | | Credit score | 660–700 minimum (680+ gets better rates) | | Loan amounts | Up to $3–5M with some lenders | | Prepayment penalty | Common — 3/2/1 or 5/4/3/2/1 step-down | | Interest-only options | Available with some lenders; improves DSCR but increases balloon risk | The prepayment penalty is the term most investors miss. If you plan to refinance or sell within the first 3–5 years, factor the penalty into your returns. --- ## The Bottom Line DSCR loans are the best tool in the STR investor's financing toolkit — but only if you understand how lenders calculate coverage and can document your deal correctly. The two things that kill otherwise-good deals: underestimated expenses that make a property look better than it is, and lenders using LTR market rent on a property that's clearly an STR. Know your numbers before you talk to the lender. **[Run your deal through Underwrite](/signup)** to get a complete DSCR analysis — including the lender package — before you make an offer.