The Quick Read: On a purchase, the down payment is cash you bring, and most short-term rental files across the wholesale network cap leverage at 75% of value, which means roughly 25% down on the strongest files. On a cash-out refinance there is no down payment at all, because your existing equity does that job and the cap drops to about 70% of value. Both paths must also clear a rental-coverage test, subject to lender guidelines.
- Purchase: up to 75% LTV (loan-to-value, the loan as a percentage of appraised value) on the strongest files.
- Cash-out: up to 70% LTV on short-term rental collateral, so at least 30% equity stays in the property.
- Credit: a 640 minimum score for short-term rentals, with stronger scores helping the file.
- Coverage: a 1.00 floor on purchases and a 1.00 floor on refinances, where select programs start.
- Experience: lenders usually expect about 12 months of hosting history.
Here is the honest answer on who each path is for. A purchase suits you if you have cash saved and want to buy a new property. A cash-out suits you if you already own a rental with real equity and want to pull some of it out, perhaps to fund your next purchase. Neither path is better in the abstract. They solve different problems, and the right one depends on what you hold today.
DSCR Cash-Out Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 8, 2026
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As of Oct 8, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Side-by-Side
The table shows how the two paths differ on structure. It describes typical ranges from select lenders in Lendmire’s wholesale network, and every file is underwritten individually.
| Factor | Purchase | Cash-Out Refinance |
|---|---|---|
| What stands in for “down” | Cash you bring | Equity you leave in |
| Leverage ceiling (STR) | Up to 75% LTV | Up to 70% LTV |
| Review basis | Property rental income vs. payment | Property rental income vs. new payment |
| Income evidence | Projection or appraisal-based | Host history, plus appraisal data |
| Hosting experience | About 12 months expected | About 12 months expected |
| Minimum credit score | 640 | 640 |
| Coverage floor | 1.00 | 1.00 |
| Ownership period | None | Commonly about 6 months |
| Reserves | Commonly around 6 months of PITIA | Commonly around 6 months of PITIA |
| Timing driver | Contract and appraisal schedule | Payoff and title work |
PITIA stands for principal, interest, taxes, insurance, and association dues. It is the full monthly obligation a DSCR test measures rent against. DSCR itself is the debt service coverage ratio: the property’s rental income divided by that PITIA.
Reserves are cash left in the bank after closing. They vary by lender, leverage, loan size, and transaction type. Some conservative rate-and-term files at modest leverage under $1,500,000 can see them waived, and larger loans typically step up to about 9 months. Treat 6 months as a common starting point, not a rule.
How the Income Test Works on Each Path
Both paths qualify primarily on property-level rental income covering the payment, subject to lender guidelines. The lender looks at the property rather than your pay stubs. The difference is what evidence the property can offer.
A purchase has no operating history under your ownership. The lender usually relies on a projection from a market-data service or on the appraiser’s rent analysis. An existing short-term rental you own can offer actual booking and platform history, which tends to be stronger evidence. Programs differ on which method they accept, so ask early which income evidence a lender will use.
Lenders also commonly trim short-term gross income before running the ratio. Short-term rentals carry higher operating costs than long-term leases, and the trim reflects that. The size of the trim varies by program.
The appraisal adds a wrinkle. The appraiser values the real estate, not the furniture and not the business. McKissock’s appraisal education team notes that appraisers cannot simply multiply a nightly rate by 30 to produce monthly rent on the standard rent schedule, and that income is ultimately the lender’s call. The two standard forms are the 1007 for one-unit properties and the 1025 for two to four units. Fannie Mae’s own appraiser update says its Selling Guide is silent on whether short-term income counts as rental income. That is an agency contrast only, since agency rules do not govern DSCR files. Still, it shows why a rent schedule can land well below true short-term income, and why the income method can swing your ratio.
What Does Down Payment Mean on a Cash-Out?
On a cash-out, the down payment does not exist, and equity takes its place. The cap sets how much equity must stay in the property. At 70% LTV on short-term rental collateral, at least 30% of the appraised value stays behind as your cushion. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Run the numbers in percentages. Say a property you own appraises at a value you treat as 100%. Your current loan balance is 50% of that value. A 70% cap leaves room for a new loan up to 70%, so the gap is roughly 20% of value before costs and payoff items. That gap is the most you could pull out on leverage alone.
Rent can shrink that gap further. Lenders test the new, larger balance against the rent, and the new payment is what counts, not the old one. A larger loan means a larger payment and a thinner cushion. On a cash-out, thin rent can cap your proceeds before the LTV cap does.
The ownership period matters too. Across the network, about 6 months of ownership is the common expectation before a cash-out. Until then, some programs base proceeds on cost rather than on appraised value.
When a Purchase Is the Better Fit
A purchase is the better fit when you have cash, no suitable equity to tap, and a property you want to buy. It is also the path for a first short-term rental. Nothing exists yet to refinance.
Here is what the buyer’s side looks like. You bring roughly 25% of the price on the strongest files, since the cap is 75% LTV. You also bring closing costs and reserves, and you need a 640 score at minimum. Stronger scores generally open better leverage tiers. The lender wants to see experience, and about 12 months of hosting history is the usual expectation. If you lack it, expect the file to be reviewed more carefully, and a different program may fit better.
A purchase also gives you the cleanest control over coverage. A bigger down payment shrinks the loan and the payment, which lifts the DSCR. If a property comes in just under the floor, putting more down can help. It cannot override the leverage cap, the credit floor, the reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Choose a purchase when:
- you have not owned a short-term rental long enough to season a cash-out;
- your equity sits in a primary residence rather than a rental;
- you would rather start with a clean title and a fresh appraisal.
Two property cautions apply. Manufactured homes, log homes, and barndominiums are not offered in the network’s DSCR programs. Loan sizes run up to $3,000,000 on standard programs, and above $2,500,000 the network generally holds to 30-year fixed structures.
When a Cash-Out Is the Better Fit
A cash-out is the better fit when you already own a rental with meaningful equity and want to turn some of that equity into working capital. Many investors use the proceeds from one rental as the down payment on the next.
It tends to work best when the existing property has a full hosting history. Actual booking records are stronger evidence than a projection, and they can support the coverage test on a larger balance. It also suits an investor who wants to hold title in an LLC, subject to lender program eligibility. A personal home-equity line generally cannot do that.
Cash-out also has real limits. The 70% cap is lower than the 75% purchase cap, so you leave more equity behind. The larger new loan has to clear the 1.00 coverage floor on its own payment. And a recent purchase may not yet meet the ownership period. If you bought recently and want your cash back, Lendmire’s piece Cash-Out vs Delayed Financing on a Short-Term Rental Purchase covers that specific tradeoff.
Choose a cash-out when:
- the property has strong equity and an established booking record;
- you want to fund the next purchase from the last one;
- the rent still covers the larger payment with room to spare.
The Coverage Trap: Bigger Loan, Thinner Cushion
Clearing the coverage test does not mean the property makes money. DSCR compares rent to PITIA only. Repairs, vacancy, management fees, utilities, cleaning, and capital expenses all sit outside the calculation. A property can clear 1.00 and still lose money each month.
The two paths push coverage in opposite directions. Putting more down on a purchase lowers the loan and lifts the ratio. Pulling more out on a cash-out raises the loan and lowers the ratio. As a rough model, imagine rent that covers a lower-balance loan at about 1.35x. Raise the balance to the 70% cap and the ratio could slip toward 1.15x. Taxes and insurance do not shrink as the loan grows, so the real change will differ. That is a modeled illustration, not a market figure.
Programs differ at the edges. Many select programs start at 1.00. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios generally open better leverage and terms on either path.
Where the Down Payment Can Come From
Lenders care where your cash came from, not only that you have it. Savings in your own accounts are the simplest source. Proceeds from a cash-out on another property are also common. Gift funds, seller credits, and borrowed funds each carry their own treatment, and programs differ on what they allow. Ask before you build a plan around them.
Sequencing matters. If your down payment is coming from a cash-out on another property, that refinance has to happen first, and its own ownership period applies. Lendmire’s piece Smaller HELOC vs Larger Cash-Out Refinance for a Rental Down Payment walks through that choice for investors weighing the two. Plan the order of events before you sign a purchase contract, not after.
A strong projection means little if the property cannot legally host guests.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Key Terms Defined
DSCR is the debt service coverage ratio. It divides a property’s rental income by its full monthly obligation to show whether the rent covers the payment.
LTV is loan-to-value. It is the loan balance as a percentage of the property’s appraised value.
PITIA is principal, interest, taxes, insurance, and association dues. It is the monthly obligation the ratio is measured against.
Cash-out refinance replaces your existing loan with a larger one, and you receive the difference as cash.
Seasoning is the waiting period a lender wants between two events, such as buying a property and refinancing it.
Reserves are liquid funds you hold after closing, usually counted in months of PITIA.
Form 1007 is the appraiser’s single-family rent schedule. The Fannie Mae Selling Guide requires it for one-unit investment properties when rental income is used to qualify, and DSCR lenders borrow the form’s name and general approach.
The Balanced Verdict
Neither path is cheaper or easier in general. They answer different questions. A purchase asks how much cash you can bring and whether the rent covers a loan sized at up to 75% of value.
If you hold no suitable property, buy. If you hold a seasoned rental with real equity, consider a cash-out, and check that the larger payment still clears coverage. If you are weighing both, the question that decides it is usually coverage, not cash.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Lendmire’s complete DSCR loans guide covers the broader mechanics behind both paths. If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Programs are placed through select lenders in the wholesale network across 41 markets, including Washington, D.C., and nothing here is a commitment to lend.
Frequently Asked Questions
How much do I need down on a short-term rental DSCR purchase?
On the strongest files, you need roughly 25% of the price, because purchase leverage tops out at 75% LTV. Weaker files may need more. You also need closing costs and reserves on top of the down payment, so budget for all three. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Is there a down payment on a cash-out refinance?
No. Equity does the job a down payment does. At up to 70% LTV on short-term rental collateral, at least 30% of the value stays in the property. Rent coverage on the new, larger loan can limit your proceeds before that cap does. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can cash-out proceeds fund the down payment on my next rental?
Yes, many investors do exactly this. The refinance has to happen first, and its ownership period applies to the property you are refinancing. Sequence the two transactions before you commit to a purchase contract.
Will a bigger down payment fix weak rental coverage?
It can help, because a smaller loan means a smaller payment and a higher ratio. It does not override the leverage cap, the 640 credit floor, the reserve rules, or property eligibility. Select lenders in the network also offer a separate path below 1.00 coverage, with leverage and terms adjusted.
Does clearing 1.00 mean the property has positive cash flow?
Not necessarily. The ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside it, so a property can pass the test and still lose money.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. McKissock: Form 1007 and its impact on short-term rental appraisals
2. Fannie Mae Appraiser Update
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Short-Term Rental DSCR Seasoning Rules for Purchase vs Cash-Out · Short-Term Rental DSCR Cash-Out LTV vs Purchase LTV Requirements · Short-Term Rental Loan Options: Purchase vs Cash-Out Compared
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.