The Quick Read: A short-term-rental vacancy factor is a single haircut that lenders take off projected or reported rental revenue before dividing by the full housing payment, so condotel and resort unit buyers qualify on a reduced income figure rather than on the nightly revenue the unit actually books. The haircut shrinks the top of the ratio. It never touches the payment on the bottom. The size of the cut is set by each program, not by a universal rule.
- The factor is usually one haircut covering vacancy, seasonality, platform fees and sometimes management. It is rarely a separate vacancy line.
- The ratio divides the reduced income by the full payment, and on a condotel that payment includes the association dues.
- On a short-term-rental purchase, select lenders in the network go up to 75% LTV with a 1.00 coverage floor. On a refinance or cash-out on short-term-rental collateral, the ceiling is 70%.
- Income evidence decides the number: operator statements, a market projection, or a long-term rent appraisal can give three different answers on the same unit.
- Clearing 1.00 on paper does not mean the unit makes money.
What Does a Vacancy Factor Actually Do in a Short-Term-Rental File?
A vacancy factor cuts the income side of the debt service coverage ratio and leaves the payment alone. Underwriters take gross short-term-rental revenue, reduce it by a program-set percentage, and divide the result by principal, interest, taxes, insurance and association dues.
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Most investors expect a line item labeled vacancy. That is not how most files read. The haircut is a blended allowance. It stands in for empty nights, slow seasons, platform fees and, on some programs, management. A long-term rental file might carry a small vacancy allowance. A short-term file carries a larger one because the revenue swings more and the costs are heavier.
The haircut is an underwriting cushion. It is not a forecast of how many nights the unit will sit empty. A unit that books at high occupancy still gets the same haircut, and a unit that books poorly gets no extra penalty beyond what its income evidence already shows.
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. The property qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
Why Do Condotels and Resort Units Get Different Treatment?
Condotels and resort units get different treatment because the project, not just the unit, decides whether a program will take the file. A condotel is a deeded condo unit in a hotel-style project with a front desk, housekeeping and a rental program. Lenders look at the building first and the unit second.
That is why many buyers end up on investor loans. Agency financing is not available for these projects. Fannie Mae’s Condo Status Finder FAQ says projects that operate as a hotel or manage short-term rentals cannot be financed by Fannie Mae, even when the units are individually owned. That is the only reason agency rules appear here. They explain why DSCR becomes the route. They do not govern how a DSCR file is underwritten.
Three project features move the file most.
- Rental program type. A voluntary rental pool is a softer flag. A mandatory pool that takes away the owner’s own use is a hard flag on most non-QM programs. The agency selling guide lists hotel licensing and required rental pooling as triggers for ineligibility on its own side of the market, and DSCR lenders tend to react to the same project features, each by its own program rules.
- Dues. Condotel association dues are often high, and they sit inside the payment.
- Owner control. Who sets the rates, who books the nights, and who keeps what share all change what income can be documented.
A resort-area condo inside a master planned community is not automatically a condotel. It may simply be a non-warrantable condo, which carries its own leverage limits. Lendmire’s piece What Is a Condotel? Financing Options for Resort Unit Buyers covers the classification question in full, so this article stays on the vacancy math.
Key Terms Defined
Vacancy factor (haircut): The percentage a program removes from gross short-term-rental revenue before it calculates coverage.
PITIA: The full monthly housing obligation, made up of principal, interest, taxes, insurance and association dues.
Trailing history: Twelve months of actual operator or booking-platform statements for the unit.
Rental pool: A program where the resort operator rents the unit and splits the revenue with the owner.
Occupancy minimum: A separate lender condition on how much the unit must book. It is not the same thing as the vacancy factor.
Market vacancy rate: The share of nights or units empty across a local market. It is a market statistic and is not the haircut a lender applies.
These terms get used interchangeably across the industry. They are different things, and a lender conversation goes better when the borrower keeps them apart.
The Underwriting Sequence, Step by Step
The sequence runs in a fixed order, and the order matters because each step feeds the next.
1. Classify the collateral. The lender decides whether the building is a condotel, a non-warrantable condo or a plain condo. Some programs will not take the project at all, and that ends the file before any math.
2. Choose the income evidence. Trailing twelve-month statements from the operator or platform are the cleanest evidence. A market-based projection is the fallback when there is no history. A long-term rent appraisal is a third option.
3. Annualize. Twelve months are averaged. A resort unit that earns most of its revenue in a few peak months is judged on the full-year figure, not the peak.
4. Remove the operator’s share. If a rental pool keeps part of gross, that share comes off before the coverage test.
5. Apply the haircut. The program’s percentage is applied to what is left. Ask the lender whether the haircut sits on top of the operator split or replaces it.
6. Divide by full PITIA. The reduced income is divided by the whole payment, association dues included.
7. Test the floor. On a short-term-rental purchase, the typical floor is 1.00 coverage, and on a refinance the typical floor is also 1.00. Those are separate tests, and each transaction is evaluated on its own.
8. Check permissibility. 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.
Programs vary on how they handle steps 4 and 5. That variation is where most surprises come from.
Which Income Path Fits Which Unit?
The income path changes the coverage figure more than any other choice on the file. The table below compares the four common paths.
| Path | Evidence needed | How seasonality is handled | Best fit |
|---|---|---|---|
| Operator statements | Trailing 12 months from the resort | Averaged into the full year | Units with a track record |
| Platform history | Booking platform export | Averaged into the full year | Owner-managed units |
| Market projection | Third-party STR data report | Built into the projection | New purchases, no history |
| Long-term rent appraisal | Appraiser rent schedule | Not applicable | Fallback or sub-1.00 files |
Two cautions apply. First, an appraiser’s standard rent schedule estimates long-term market rent. It does not capture vacancy, business expenses or hotel-style services, so many condotel files skip it. Second, not every lender takes a data-provider projection. A BiggerPockets forum reply notes that only some DSCR lenders acknowledge those reports, and that matches what Lendmire sees across its wholesale network. A buyer with a purchase contract and no hosting record should ask which projection sources a program accepts before paying for a report.
How Do Resort Dues Change the Math?
Resort dues raise the payment and shrink the margin above the floor. The haircut takes the same proportion off any unit, but a unit with heavy dues starts with less raw coverage, so the same haircut pushes it closer to the floor and sometimes under it.
Think of two units with the same haircut. One is a house-style rental with modest carrying costs. The other is a resort unit where association dues claim a large share of the payment. Both earn the same raw revenue relative to their prices. The resort unit begins with a thinner ratio, so a 20% haircut leaves it with little or no cushion. The house-style unit has room to spare.
Dues also behave differently from revenue. Revenue falls in a slow season. Dues do not. A lender averaging twelve months takes some of that into account, but the borrower carries the fixed dues through the slow months either way. Special assessments, where the project has them, can lift the payment further and are worth asking about early.
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.
Worked Example: One Haircut, Several Levels
The figures below are illustrative modeling, not network guidelines and not market data. They show how a ratio moves as the haircut changes. Unit A is a house-style rental whose raw revenue covers the full payment at 1.50x. Unit B is a resort unit with heavy dues whose raw revenue covers the full payment at 1.25x.
| Haircut | Qualifying income | Unit A (1.50x raw) | Unit B (1.25x raw) |
|---|---|---|---|
| 10% | 90% of gross | 1.35x | 1.13x |
| 15% | 85% of gross | 1.28x | 1.06x |
| 20% | 80% of gross | 1.20x | 1.00x |
| 25% | 75% of gross | 1.13x | 0.94x |
| 30% | 70% of gross | 1.05x | 0.88x |
The takeaway is simple. If a program counts income at 80% of gross, a unit needs raw coverage of about 1.25x to show 1.00x on paper. Unit B sits right on that line. A slightly more conservative program or a slightly lower income record tips it below 1.00x. Unit A passes at every level shown.
Coverage below 1.00 is not always the end of the file. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Where a unit has no operating history, those files often lean on long-term rent evidence instead of nightly income. Qualification stays subject to lender guidelines, credit approval and property review.
When Haircuts Stack
Haircuts stack when more than one adjustment lands on the same income figure. A rental-pool operator keeps a share. The program then applies its haircut. An occupancy assumption in a projection may add a third reduction. Each is reasonable on its own, and together they can be heavy.
An operator’s net distribution statement may already be net of operating costs. If a program then applies a full haircut on top, the income can be discounted twice for the same costs. Programs treat this differently. Some work from gross revenue and remove the operator share explicitly. Others work from the distribution the owner receives. The borrower cannot see which method applies until the lender says so, which is why the question belongs early in the conversation.
Ask three things. Is the haircut applied to gross or to the owner’s net distribution? Is an occupancy assumption layered on top? Does a separate leverage or coverage overlay apply to condotels? The answers tell the buyer whether the quoted ratio is the real one.
Seasonality and Reserves
Seasonality is handled by averaging, and reserves are the backstop for the slow months that the average smooths over. Lenders use annualized income and not the peak season. They may also look at the seasonal pattern to confirm the unit still covers its debt in the weakest months.
A beach or ski unit can earn most of its year in a few months. The trailing average still passes the test, but the owner pays the full dues and payment through the off-season. Reserves matter here. They vary by lender, leverage, loan size and transaction type. Many files see around six months of PITIA, conservative files at modest leverage under $1,500,000 can see reserves waived, and larger loans typically step up to about nine months. Documenting reserves cleanly gives the lender fewer gaps to review, and it gives the owner a real cushion for the months the ratio ignores.
Why Passing the Ratio Is Not the Same as Cash Flow
Passing the ratio does not mean the unit makes money. The DSCR test compares rent to PITIA only. Repairs, vacancy beyond the haircut, management, utilities, furnishing and capital expenses all sit outside the calculation.
A resort unit carries heavier operating costs than a long-term rental. Cleaning between stays, supplies, platform fees, furniture replacement and utilities all cost real money. The underwriting haircut is a cushion for the lender. It is not a substitute for the owner’s own budget.
Build a separate full-expense pro forma before the offer. Start with realistic occupancy and nightly rates for the specific building. Subtract every operating cost. Include dues and any special assessment history. Compare the result with the lender’s ratio. A unit that passes at 1.00x on paper and loses money after costs is a bad purchase with a clean file. A basic net operating income formula that subtracts expenses and vacancy from gross income is the right contrast, because the DSCR test typically does neither. Tax treatment varies, so investors should keep clear records and consult a qualified professional.
Questions to Ask Before You Make an Offer
A short list of questions up front saves an appraisal fee on a unit that will not fit a program.
- Which income path will this program use for this unit: operator statements, platform history, projection or long-term rent?
- What haircut applies, and is it applied to gross or to the owner’s share?
- Is the rental pool mandatory or voluntary, and does the owner keep personal-use rights?
- Which dues and assessments count in PITIA?
- Does the program accept this building at all?
- What leverage applies to this property type? On a short-term-rental purchase, up to 75% LTV is the ceiling on the strongest files, and a refinance or cash-out on short-term-rental collateral tops out at 70%.
- Is any personal use planned? DSCR loans are business-purpose, so disclose it. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Loan sizes on standard programs go up to $3,000,000. Programs change, and every file is underwritten individually.
Frequently Asked Questions
Does the vacancy factor lower my monthly payment?
No. The factor reduces the income used in the ratio. The payment stays whole, with taxes, insurance and association dues all included. A larger down payment is what lowers the payment and can lift coverage, though it does not override leverage caps or property eligibility.
Is a rental-pool unit treated differently from one I manage myself?
Yes. A rental-pool unit has the operator’s share removed before coverage is tested, and the income evidence usually comes from operator statements. A mandatory pool that limits the owner’s own use is a hard flag on most programs. A voluntary pool is a softer one. Each program decides for itself.
Can Airbnb or platform income count?
Yes, in many cases. Booking-platform history for the unit can serve as trailing evidence. A projection from a data provider is the fallback when there is no history, and only some lenders accept those reports. Lendmire’s guide How to Run STR Loan Numbers on a Condotel for a Resort Buyer walks through the income inputs.
Why do two lenders give different ratios on the same unit?
Each program sets its own haircut, picks its own income method and treats the rental pool its own way. The same unit can show a comfortable ratio with one lender and a thin one with another. This is why a broker who sees many lenders’ guidelines can match the unit to the program that fits it.
What happens if the ratio comes in under the floor?
The first move is to check the income path and the haircut, since a different evidence method can change the number. A larger down payment may help, and reserves can strengthen the file. A select-lender path also exists for coverage below 1.00, with leverage and terms adjusted. Eligibility is subject to lender guidelines, credit approval and property review.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire, a mortgage broker arranging DSCR financing in 41 markets including Washington, D.C., can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. The complete DSCR loans guide covers the basics for investors new to the product. Not a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Condo Status Finder FAQ
2. Fannie Mae Selling Guide, Ineligible Projects
3. BiggerPockets forum thread on underwriting mid-term rentals for DSCR loans
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 Portfolio DSCR Loan for Rural Cabin STR Properties · Blanket Loan vs Super Jumbo DSCR Loans Across a 2-4 Unit Portfolio · How a Condotel Lender Sizes Airbnb Income for DSCR
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.