The Quick Read: Most lenders do not subtract a separate vacancy line from short-term rental income. They apply one blended haircut that covers vacancy, platform fees, cleaning, management and seasonality in a single step, and the size of that haircut varies by lender and by income source.
- Published market ranges run from roughly 15% to 25% off gross STR income, and some experienced operators may get no haircut at all.
- No federal rule sets the factor, so it is a lender-by-lender call.
- On a cash-out refinance, the haircut is usually applied to documented operating history, not a projection.
- Short-term rental cash-out leverage on Lendmire’s network tops out around 70% LTV, with a 1.00 coverage floor on refinances.
- Because the haircut lowers the income used to test the debt service coverage ratio (DSCR), a larger haircut can make it harder to meet the coverage floor on a bigger cash-out loan.
What Is the Vacancy Factor on STR Income?
The vacancy factor is a percentage the lender subtracts from gross rental revenue before it tests coverage. Think of it as a single adjustment, not a line-by-line expense audit.
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A bank would load the denominator with management, vacancy and maintenance assumptions. A DSCR lender works differently. It takes the income figure, trims it once, and divides what remains by the full monthly obligation: principal, interest, taxes, insurance and any HOA dues. A BiggerPockets forum thread frames the difference this way, as an investor’s view of how DSCR lenders divide appraisal rent by the housing payment.
Lenders label the trim differently. Some call it a vacancy factor, others an expense factor or income factor. The mechanics are the same: gross income goes in, a reduced qualifying figure comes out.
How Big Is the Haircut?
It depends on the lender, the program and the income source. Published ranges are wide, and none of them is a rule.
BiggerPockets reports that lenders typically cut gross STR income by an expense factor of about 20% to 25%. Its example turns $10,000 of projected monthly income at a 20% factor into $8,000 of effective income. The article is older, so treat that as a typical range, not a current figure. It also notes some experienced STR operators may get no factor at all and qualify on the full income.
Rabbu, an STR data vendor, says most underwriters apply vacancy factors of 15% to 25% to projected STR income. That figure also blends vacancy with other costs.
The haircut is not a fixed national number, and wholesale lenders can treat the same file differently. One program may count most of documented history, while another may trim projections harder. That spread is the reason a broker shops the file instead of assuming one answer.
| Income source | Typical haircut treatment | Why |
|---|---|---|
| 12 months of platform or bank records | Usually the most favorable | Real, tied-out history |
| Third-party projection | Often trimmed harder | It is an estimate |
| Appraiser STR analysis | Varies by lender | Supports or caps the figure |
| Long-term rent fallback | Treated as standard rent | Used if STR income is not supported |
Key Terms Defined
Vacancy factor: The percentage a lender removes from gross rental income to account for empty nights.
Haircut: Any reduction a lender applies to income before testing coverage. It may blend vacancy, fees and seasonality.
Qualifying income: The reduced income figure the lender actually divides by the monthly obligation.
DSCR (coverage ratio): Rent used for lender review divided by principal, interest, taxes, insurance and HOA dues. It is not a measure of cash flow.
How Does the Underwriting Work, Step by Step?
Underwriting follows four steps, and the haircut sits in step two.
1. Establish gross income. On a cash-out refinance, the core document is a 12-month operating history. Lendmire’s network generally expects about 12 months of hosting experience on STR files. Platform reports, manager statements and bank deposits should tie out month by month.
2. Apply the haircut. The lender trims gross revenue by its factor. Some programs trim projections further than documented history.
3. Divide by the full payment. Qualifying income is divided by the complete monthly obligation, HOA included.
4. Compare to the program floor. On STR refinances, 1.00 is where select programs start. Stronger ratios open better pricing and leverage.
Seasonality matters because the lender views a full 12-month window. The slow months count as much as the peak. Per HousingWire, Form 1007 is not designed to support STR income, and forcing it through that form can produce artificially low coverage. The same article recommends a narrative addendum and stress-testing for seasonality.
Why Cash-Out Changes the Math
A cash-out refinance adds a second pressure. The haircut lowers qualifying income, and a larger loan raises the monthly obligation. Both push the ratio down.
On Lendmire’s network, STR cash-out tops out around 70% LTV, versus around 75% for standard rentals. Expect a 640 minimum credit score and a 1.00 coverage floor on refinances. Those figures are typical ranges, subject to lender guidelines, and reserves vary by lender and loan size.
Consider a scenario with a heavier haircut. An investor’s documented history looks strong, but the lender applies a larger factor than the investor assumed. Coverage lands just under the target. The practical fixes are a smaller cash-out amount, which lowers the obligation, or a lender in the network with a lighter factor on documented history. Sub-1.00 coverage paths are available through select lenders in the network, with leverage and terms adjusted, but that is a different program path, not a floor that simply moves.
A larger down payment or smaller pull can lift coverage. It never erases leverage caps, credit floors or reserve rules. The strongest files clear both tests: enough equity and enough rental coverage.
For the full framework, see the complete DSCR loans guide.
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.
Where Does the General Rule Break?
Several edge cases change how much comes off.
- Experienced operators: Some lenders may apply no factor, per BiggerPockets above.
- Projection versus history: Projections often take an extra cut. Documented history can be treated more favorably.
- Appraiser versus a data tool: The lender may underwrite the lower, appraisal-supported figure. A data estimate alone rarely settles it.
- 1007-only files: These can understate coverage, which is the low-ratio problem HousingWire describes.
- Rules or licensing problems: 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. If STR use is not supported, the file may fall back to long-term rent.
- Blanket loans: In a pooled loan, the STR property may be capped, carved out or tested separately.
- Non-rental income: Events, hunting or farm-stay income generally should not count. The test is the residence’s rental income.
Does Your Actual Vacancy Matter?
Mostly, the lender’s assumption matters more than your real occupancy. A property with high historical occupancy can still take a haircut, because the factor also stands in for fees, cleaning and management.
Your actual numbers still help in one way. Strong, clean documented history is the best lever on a cash-out file because it avoids the projection discount and the weak 1007 problem. Records that tie out matter more than headline revenue.
Passing the ratio also does not mean the property produces positive cash flow. DSCR compares rent to the full payment only. Repairs, utilities, capex and slow quarters sit outside the calculation.
What Should You Ask Before Applying?
Use this checklist when a broker is matching your file to a program:
- Which income source does the program use: history, projection or appraiser analysis?
- What factor does it apply to that source?
- Is there a fallback if the STR figure is not supported?
- What is the maximum cash-out LTV for short-term rental collateral?
- How are reserves set for this loan size and leverage?
- Do records tie out month by month across platform, manager and bank statements? Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
The program that fits best depends on your property, credit profile, leverage need and documentation. A broker that shops multiple wholesale lenders can match those details to a program instead of forcing one lender’s factor onto every file.
Frequently Asked Questions
Do DSCR lenders subtract a separate vacancy line from STR income?
Usually not. Most apply one blended factor that covers vacancy, fees, cleaning, management and seasonality together. Actual operating costs are not typically itemized the way a bank might.
Is the vacancy factor set by regulation?
No. No federal rule sets it. Each lender chooses its own factor, which is why the figure shifts from program to program and why the same property can produce different coverage ratios.
Does the haircut hit documented income or projected income?
On a cash-out refinance, it is usually applied to documented operating history, such as 12 months of platform or bank records. Projections are used only if the program allows them, and they may take a heavier cut.
Can I lower the haircut’s impact on my cash-out?
Often, yes. A smaller pull lowers the monthly obligation, which lifts coverage. Cleaner, tied-out records and a lender with a lighter factor on documented history can also help. Qualification stays subject to lender guidelines and credit approval.
Does a 1.00 ratio mean the property cash flows?
No. DSCR compares rent used for lender review to the full payment only. A property can clear 1.00 and still lose money in a slow quarter once repairs, utilities and vacancy are counted.
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.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. BiggerPockets blog: DSCR loans for short-term rental investors
3. Rabbu: DSCR loans for short-term rentals
4. HousingWire: Short-term rentals are breaking the appraisal playbook
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: How Much Cash Comes Out of a DSCR Cash-Out Refinance for Repairs Without a Contractor? · How a Jumbo DSCR Lender Counts a Family Office Cash-Out Reserve · How Much DSCR Cash-Out Releases on a Rented Rehab
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.