Interest-only structures are a popular way to ease the payment on a vacation rental, so investors often assume they also shrink the cash needed up front. They don’t. The equity requirement comes from the leverage cap, and the payment structure sits on top of it.
The Quick Read: Usually 25% or more on a purchase, because short-term rental purchase leverage tops out at 75% LTV on the strongest files, and an interest-only period does not change that cap, though it can change the coverage ratio the lender sees.
- Short-term rental purchases typically top out at 75% LTV, which means about 25% down.
- Refinances and cash-outs on short-term rentals run lower, up to roughly 70% LTV.
- Interest-only changes the payment used in the DSCR math at some lenders. It does not lower the equity requirement.
- Expect a 640+ credit score and about 12 months of hosting history on most files.
- Down payment is only one pot of cash. Closing costs, reserves, and furnishing sit beside it.
Short-Term Rental Calculator
Run the STR numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
Prefilled with starting assumptions — enter your nightly rate, occupancy, taxes, and insurance for a more accurate picture.
Short-term rental income is documented with a 12-month history or a market data report. Program parameters update from Lendmire’s centralized guideline source.
As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Nightly rate, occupancy, taxes, and insurance are editable estimates. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
All program figures here are typical ranges from select lenders in Lendmire’s wholesale network, subject to lender guidelines and individual underwriting.
What Is the Down Payment on an Interest-Only STR Loan?
On a short-term rental purchase, plan on roughly 25% down. That follows from a 75% maximum loan-to-value (LTV), which is the loan amount divided by the property’s value. As NAR explains, LTV converts directly into a down payment: 80% LTV means 20% down, and 75% LTV means 25% down. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Short-term rental collateral gets less leverage than a standard long-term rental. Across the network, a standard rental purchase can reach 75%-80% LTV, and select high-leverage programs go to 85% with a strong score. A vacation rental’s income is less predictable, so lenders hold the cap lower. The exact numbers vary by lender and program.
Refinances are tighter still. On short-term rental collateral, refinance leverage runs around 70%, and cash-out tops out at 70% as well. Standard rentals get up to 75% on a cash-out. Mixing those two numbers up is a common mistake.
Does Interest-Only Lower the Down Payment?
No. Interest-only is a payment structure, not a leverage tier. The CFPB describes an interest-only loan as one where you pay only interest for a set period, so the balance does not fall during that stretch. The loan amount is still set by the LTV cap, and the down payment is whatever is left over.
Interest-only is available through select lenders in the network, alongside extended terms such as 40-year amortization. The 30-year fixed remains the spine of most programs. If you want interest-only, you are choosing from a narrower set of lenders, and their leverage caps still apply.
Here is where interest-only does matter. DSCR compares the property’s rent to the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues (PITIA). When a lender reviews the file on the interest-only payment, the denominator shrinks and the ratio rises. A higher ratio can move a file into a better pricing or leverage tier.
Some lenders test the file on the fully amortizing payment instead, which strips out that benefit. Two term sheets with identical LTVs can produce different coverage numbers for exactly this reason. Ask which payment the underwriter uses before you assume the benefit.
How the Down Payment Gets Decided
Four inputs set your number. The first is the transaction: a purchase gets more leverage than a refinance. The second is the property: short-term rental collateral carries a lower cap than a standard rental. The third is credit, where short-term rental files typically want a 640+ score, and stronger scores open stronger tiers. The fourth is coverage, meaning how comfortably rent covers the payment.
| Lever | Effect on down payment |
|---|---|
| Short-term rental vs. standard rental | Higher down payment for STR |
| Purchase vs. cash-out | Cash-out leaves more equity in |
| Stronger credit | Can unlock higher leverage tiers |
| Weaker coverage | Can push leverage down |
| Interest-only payment | Changes ratio, not the cap |
A larger down payment helps in two ways. It shrinks the loan, which lowers the payment, which lifts the ratio. But it never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
How STR Income Gets Counted
Before any ratio gets run, the lender has to decide what income to use. This step trips up many files. The common sources are 12 months of actual platform or property-manager history, a market projection from a data vendor, or the appraiser’s long-term rent schedule.
That last one deserves a closer look. The appraiser’s rent schedule (Form 1007 for a single-family home) is a long-term rent estimate. Fannie Mae’s appraiser guidance describes it as the comparable rent schedule for one-unit investment property. It is not a vacation-rental form. A property that clears the ratio on nightly income can fall short if the program defaults to that long-term figure.
Many lenders also haircut short-term gross income before running the ratio, because vacancy, platform fees, and seasonality are real. The size of that haircut differs by lender. Expect about 12 months of hosting history on most files, and confirm which income basis a given lender will use.
Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
Where DSCR Coverage Fits In
Coverage is rent divided by the monthly obligation. On short-term rental files, 1.00 is where select programs start, on both purchases and refinances. It is a floor for those programs, not a universal standard. Stronger ratios open better pricing and leverage.
Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. That path is separate from the 1.00 programs. In practice, a file with thin coverage often needs more down payment to work.
One caution matters here. Debt service coverage measures cash flow against debt obligations, nothing more. Clearing 1.00 does not mean the property is cash-flow positive. Repairs, vacancy, management, utilities, and capital expenses all sit outside the calculation. Budget for them separately.
Worked Example: Reading the Levers
Run it with a modeled purchase at a $500,000 price. This is an illustration, not a quote.
At 75% LTV, you put 25% down. At a more conservative 70%, you put 30% down. The lower loan means a lower payment and a stronger ratio. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Now layer in the payment type. Suppose rent, after the lender’s haircut, covers the full amortizing obligation at about 1.05x. If the file is reviewed on the interest-only payment, that same property might show closer to 1.3x. Same price, same down payment, different coverage number.
That higher ratio can help you reach a better tier. It does not let you drop below 25% down on a short-term rental purchase. And when the interest-only period ends, the payment resets to a fully amortizing one. The ratio at closing is not permanent. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Tradeoff You Accept With Interest-Only
You get a lower payment now. You give up principal paydown. During the interest-only period, your equity grows only if the property appreciates.
Then the structure changes. When the period ends, the payment steps up, and your options are typically to refinance, sell, or hold and absorb the higher payment. Plan for that exit on day one. A file that only works on the interest-only payment is a file with a built-in deadline.
Reserves can also be sized on the full payment even when the ratio uses interest-only. Reserves vary by lender, leverage, loan size, and transaction type. Roughly 6 months of PITIA is common, conservative rate-term files at modest leverage under $1,500,000 can see reserves waived, and larger loans typically step up to about 9 months.
Total Cash You Actually Need
The down payment is the headline, but it is not the full check. Add closing costs, post-closing reserves, and the cash to furnish the property and ramp up bookings. Reserves sit beside the down payment, not inside it.
| Cash pot | What it covers |
|---|---|
| Down payment | Equity in the property |
| Closing costs | Lender, title, appraisal, entity fees |
| Reserves | Months of payments held in liquid funds |
| Furnishing and launch | Setup before the first bookings |
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.
Is Zero Down Possible?
No. Every DSCR purchase needs real equity. Low down payment programs like FHA and VA are built for owner-occupants, and they do not apply to investor loans on vacation rentals. For loans above $2,500,000, the network generally holds to 30-year fixed structures, so interest-only is less available at the top end of the loan-size range.
Some property types are simply not offered. Manufactured homes (single- and double-wide), log homes, and barndominiums fall outside these programs.
If Your Coverage Comes In Short
Four levers move a thin file. Put more down, which shrinks the loan and lifts the ratio. Negotiate a lower price. Switch to an interest-only structure through a select lender. Or document stronger income, such as a full year of platform history.
Each lever trades something. More equity ties up capital. Interest-only defers principal. Qualification is always subject to lender guidelines, credit approval, and property review. For the full picture, the complete DSCR loans guide covers how these pieces fit together.
Scaling is mostly a capital problem. Many investors recycle equity through a cash-out refinance, typically after about 6 months of seasoning, instead of saving a fresh down payment for each purchase. 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.
Key Terms Defined
LTV (loan-to-value): The loan amount divided by the property’s value. A 75% LTV means 25% down. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
DSCR (debt service coverage ratio): Monthly rent divided by the full monthly obligation. It shows how well rent covers the payment.
PITIA: Principal, interest, taxes, insurance, and association dues. It is the full monthly obligation in the ratio.
Interest-only period: A set stretch where you pay only interest, so the balance does not fall.
Seasoning: The waiting period between buying a property and refinancing it.
Reserves: Liquid funds held after closing, usually counted in months of payments.
Frequently Asked Questions
Does an interest-only loan change my down payment?
Not by itself. The down payment follows the leverage cap for the property type, which is 75% LTV on a short-term rental purchase. Interest-only changes the payment used in the coverage math at some lenders, which can improve your tier, but the equity requirement stays. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Can I use projected income instead of hosting history?
Sometimes. Most short-term rental files expect about 12 months of hosting history, and some lenders will consider a market projection or the appraiser’s rent schedule. Which income a lender uses varies, so ask early.
What happens when the interest-only period ends?
The payment resets to a fully amortizing one, and your coverage ratio changes with it. Your options are to refinance, sell, or hold. Plan the exit before you close.
Can I close in an LLC?
Often yes, subject to lender program eligibility. Entity documents are part of the file, and requirements differ by lender.
How much should I keep in reserves?
It depends on the lender, leverage, loan size, and transaction type. About 6 months of PITIA is common, and loans above $1,500,000 typically step up to about 9 months. Some conservative, modest-leverage rate-term files see reserves waived.
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. Reach the team at 828-256-2183.
Pull the interest-only lever last: get the equity and the coverage right first, then decide whether the lower payment is worth the reset waiting at the end.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income rather than personal income, subject to lender and program guidelines, a fit for self-employed investors and LLC-owned portfolios. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
2. CFPB: What Is an Interest Only Loan
3. Fannie Mae: Appraiser Update June
4. Corporate Finance Institute: Debt Service Coverage Ratio
This article is part of Lendmire’s short-term rental loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Can You Borrow With a Jumbo DSCR Loan? · How a Luxury Rental DSCR Loan Works in Illinois · Is Interest-Only Available on a Super Jumbo DSCR Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.