The Quick Read: On a refinance, the lender takes your trailing twelve months of short-term rental income, cuts it by a program-set percentage, and divides what remains by the full monthly payment. The discount lowers your coverage ratio and can shrink the loan. The cut is often called a haircut. It never touches the payment side of the math.
- The discount hits income only. The full payment (principal, interest, taxes, insurance, and association dues) stays in the denominator.
- A refinance leans on history. A purchase often relies on a market-data projection, while an operating rental usually is reviewed on documented bookings.
- The size of the cut varies. The most common treatment across the wholesale network counts roughly 80% of gross income. A few programs reduce or waive the cut for experienced hosts.
- Typical network guidance for short-term-rental collateral: up to 70% LTV on a refinance or cash-out, a 640 credit score, and about 12 months of hosting history, subject to lender guidelines.
- Two tests run at once. Equity caps the loan, and discounted income caps the loan. On a cash-out, the income test often binds first.
Key Terms Defined
DSCR (debt service coverage ratio) is the property’s rental income divided by its monthly housing payment. A result of 1.00 means income equals the payment.
PITIA is principal, interest, taxes, insurance, and association dues. It is the full monthly obligation on the property.
Haircut (discount, expense factor) is the percentage a lender removes from gross short-term rental income before calculating coverage. It stands in for higher operating costs and swings in bookings.
Trailing-12-month history is the most recent year of actual bookings, taken from platform payouts, manager statements, and bank deposits.
Qualifying income is the number left after the haircut. It is the only income figure the lender divides by the payment.
Binding limit is whichever cap, leverage or coverage, ends up setting your maximum loan.
DSCR Cash-Out Calculator
Run the cash-out 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 property’s value, balance, taxes, and insurance for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 15, 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.
What Is the Short-Term Rental Income Discount?
The discount is a program rule, not a law. Each lender decides how much short-term rental income to count, and the most common choice is to count about 80% of gross.
The reason is simple. Nightly rentals cost more to run than a twelve-month lease. Cleaning, turnover, platform fees, utilities, and slow months all take a bigger bite. A lender cannot see those costs in a dashboard total, so it trims the income up front. Industry commentary typically describes that trim as 20% to 25%, though it is not uniform and some experienced hosts see it reduced or waived.
Here is the part many investors miss. A standard textbook DSCR uses net operating income. Most DSCR programs skip that. They run discounted gross income over PITIA. The haircut is the lender’s shortcut for expenses it never audits line by line.
This is a good place to pull back to basics. The complete DSCR loans guide covers the ratio itself. DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines, so the haircut is the step that decides how much income counts.
Because the haircut changes the numerator only, a 20% cut on a property that shows 2.00 gross coverage lands at 1.60. The payment did not move. The income simply counts for less.
What Income Evidence Does a Refinance Use?
A refinance of an operating rental normally uses your own history. A purchase has no history yet, so it leans on projections or an appraiser’s analysis.
| Factor | Refinance | Purchase |
|---|---|---|
| Main evidence | 12 months of actual bookings | Market-data projection or appraiser analysis |
| Typical documents | Payout statements, manager reports, deposits | Comparable listings, forecast report |
| Where the haircut shows up | On the monthly average of history | On the projected monthly figure |
| Network STR floor | 1.00 on refinances | 1.00 on purchases |
Both floors are the starting point for select programs, not a promise. Stronger ratios open better pricing and leverage. A separate select-lender path also exists below 1.00, with leverage and terms adjusted.
Some lenders will accept a projection on a refinance. They are a smaller group, and they tend to lean on the more conservative figure when history and projection disagree. If your history is strong, lead with it.
How Does Underwriting Turn Bookings Into Qualifying Income?
Underwriting follows a fixed order. Knowing it tells you where a file can slip.
1. Pick the evidence. On an operating rental, that is the trailing twelve months of actual income.
2. Gather the documents. Platform payout statements, property-manager statements, and bank deposits should reconcile to each other. A mismatch between them is a common reason a file stalls.
3. Total the year and divide by 12. Slow months stay in. Some programs average deposits across all twelve months, empty months included. Showing only the peak months does not work.
4. Apply the program’s haircut. With a 20% cut, 80% of the monthly average counts.
5. Divide by full PITIA. Taxes, insurance, and association dues all count, and they are measured at the new loan size.
6. Compare to the floor. The result must clear the program’s coverage minimum for that transaction.
7. Test leverage in parallel. The loan is sized at the lower of the LTV cap and the largest loan the discounted income can support.
Five things decide the outcome: the haircut percentage, the evidence path, the twelve-month average, PITIA at the new loan size, and the LTV cap.
Worked Example: One Property, Five Discount Levels
These are modeled assumptions, not market data. Say a short-term rental shows 1.25x coverage on gross bookings against its full payment. Here is what each haircut does.
| Haircut | Qualifying coverage | Against a 1.00 floor |
|---|---|---|
| None (waived) | 1.25x | Clears with room |
| 10% | 1.13x | Clears |
| 20% | 1.00x | Right at the floor |
| 25% | 0.94x | Below the floor |
| 30% | 0.88x | Below the floor |
Same house, same payment, same bookings. The only change is how much income the lender trusts. This is why two lenders can give two different answers on one file.
Below 1.00, the file is not automatically dead. Select lenders in the network offer a sub-1.00 path, with leverage and terms adjusted. Qualification stays subject to lender guidelines, credit approval, and property review.
The calculator on this page works the same way. It gives an illustrative estimate of how a haircut moves coverage, and you can edit the inputs to test your own assumptions. It is an estimate, not a quote.
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.
How the Discount Interacts With a Cash-Out
A cash-out is where the discount costs the most. Pulling equity raises the loan balance. A bigger balance raises the payment, and a higher payment thins coverage.
Picture a refinance that clears at about 1.35x on discounted income at today’s balance. Now suppose the cash-out lifts the payment by a third. Coverage falls to roughly 1.01x. The equity test might allow more, but the income test says stop.
That is the binding-limit idea in action. On short-term-rental collateral, cash-out tops out around 70% LTV. Standard long-term rentals reach about 75% on a cash-out. Yet a property with a heavy haircut may never reach either cap, because coverage runs out first. Test the ratio at the new loan amount, never at the old balance. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Lendmire’s piece How Short-Term Rental Income Caps a DSCR Cash-Out Refinance goes deeper on that back-solve. Six months of ownership is the common seasoning expectation on a cash-out across the network.
Why Doesn’t the Appraisal Settle It?
Many investors assume the appraiser’s number becomes the income number. It does not.
On a single-family home or condo, the appraiser fills out Form 1007, which estimates monthly market rent. McKissock, an appraisal education provider, explains that the form documents monthly rent, not nightly rent or business income. Appraisers weigh the value of the real property. They do not weigh personal property or business income, and the lender decides how income is counted.
Class Valuation makes the same point from the appraiser’s side. Short-term rental income is business-driven. It depends on nightly pricing, seasonal demand, occupancy swings, cleaning and turnover costs, and local regulation. A rent form built for yearly leases cannot capture those drivers.
On a two- to four-unit property, the appraisal uses Form 1025 instead. The same logic applies. Treat the appraisal as your value source and your long-term-rent fallback. It does not prove your nightly income.
Where the General Rule Breaks
The 80% treatment is a common pattern, not a law. These are the places it bends.
- Appraiser rent replaces your income. If a file defaults to the 1007 figure, long-term rent can land well below what the property actually earns as a short-term rental. Ask whether documented history or a projection can take its place.
- History and projection disagree. Lenders commonly lean toward the more conservative number. Policy varies, so do not assume the higher figure wins.
- Seasonality. A lake cabin with a strong summer and a dead winter gets averaged across all twelve months. Peak months used alone do not hold up.
- Real expenses above the haircut. If your actual costs run above the standard cut, a lender may use the higher expense figure.
- Experienced-host relief. Some programs reduce or waive the haircut for hosts with a proven record. That is a program feature, not an entitlement.
- Partial-year history. About 12 months of hosting history is the usual expectation on short-term-rental files. With less, fewer programs apply, and pricing or leverage may change.
- Local rules. 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.
- Property type. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs, no matter how well they book.
Does Passing 1.00 Mean You Are Cash-Flowing?
No. Coverage compares rent to PITIA and nothing else.
Repairs, vacancy, management fees, utilities, cleaning, platform costs, and capital expenses all sit outside the ratio. The haircut only approximates them for qualifying. A property can clear the floor and still run thin once real operating costs land.
This is worth a quick thinking-out-loud moment. A file at 1.05x after the haircut is likely approvable on coverage, but the investor’s own cash-on-cash math may look weak. The stronger play is often the property with real cushion in both tests, enough equity and enough rental coverage. Run your own operating budget before you decide what to pull out.
Pre-Application Checklist
Run these checks before a lender sees the file.
- Pull twelve months of platform payout statements and property-manager statements.
- Match them to bank deposits month by month, and explain any gaps.
- Average all twelve months, slow ones included.
- Model your coverage at several haircut levels, as in the table above.
- Re-run the ratio at the new loan amount, with current taxes, insurance, and dues.
- Check that your credit score meets the program tier, with 640 as the short-term-rental floor and higher scores opening better leverage.
- Confirm local short-term rental rules for your address.
For the paperwork side, see Lendmire’s guide Short-Term Rental Cash-Out Refinance Income Documentation Requirements. Reserves vary by lender, leverage, loan size, and transaction type. About six months of PITIA is common, and larger loans often step up.
Frequently Asked Questions
Does the discount apply to my actual bookings or only to projections?
It depends on the program. Many programs apply a haircut to actual history as well, because bookings still carry higher costs and swings than a lease. A few reduce or waive it for experienced hosts. Ask what percentage counts before you compare offers.
Can I use a projection on a refinance instead of my history?
Sometimes, but it is the less common path. A smaller group of lenders will underwrite a market-data projection, and many lean toward the more conservative figure when both exist. If your history is weak or partial, a projection may help. If it is strong, history is usually the cleaner route.
Do I need traditional personal-income documentation for a short-term rental refinance?
DSCR files qualify primarily on property-level rental income covering the payment, subject to lender guidelines. Personal income documents play a smaller role than on a standard mortgage. Lenders still review credit, assets, and your platform and deposit records.
What if I have less than a year of hosting history?
Expect fewer options and possible changes to leverage or terms. About 12 months of hosting history is the usual expectation. Some select lenders may review a shorter record or a projection, subject to their guidelines.
Why is my ratio lower than I expected?
Check three things. The haircut may be larger than you assumed, slow months may be pulling your average down, or the payment may be higher at the new loan size. Taxes, insurance, and association dues all count in the denominator.
Next Step
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. As a broker, it arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Programs change, every file is reviewed individually, and none of this is a commitment to lend. Tax treatment varies; consult a qualified professional.
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.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. McKissock – Form 1007 and Short-Term Rental Appraisals
2. Class Valuation – Why Form 1007 Can’t Be Used for Short-Term Rentals
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 to Qualify for a Short-Term Rental DSCR Loan as an LLC or Partnership · How to Qualify for a DSCR Refinance When Airbnb Income Is Discounted · How to Compare Short-Term Rental Business Loan Options: What Each Product Finances
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.