DSCR loans for short-term rentals, explained without the jargon
Why the loan that gets a short-term rental financed is usually not the one that got you your house, and what lenders actually look at.
Most people financing their first short-term rental start by calling the lender who did their primary residence. That conversation usually goes badly, and not because anyone did anything wrong. It is the wrong product.
What a DSCR loan actually is
DSCR stands for debt service coverage ratio: the property's income divided by its loan payment. A DSCR loan is underwritten primarily on that ratio rather than on your personal income.
If a property produces $60,000 a year and the annual debt service is $48,000, the ratio is 1.25. Most lenders want to see 1.0 or better, and price improves as the ratio rises.
The practical consequence is the appeal: your debt-to-income ratio, your W2, and how many mortgages you already carry matter far less. That is why this is the usual route for self-employed buyers and for anyone buying their third property.
Second home loans are a different thing
A second home loan usually carries better pricing, and usually assumes you occupy the property for part of the year while restricting how much you may rent it out. If you intend to rent year round, that is the wrong product, and lenders take the distinction seriously.
Being straightforward about your intention here is not just an ethics point. Occupancy misrepresentation is mortgage fraud, and platforms now share host data with cities in several states, which makes the paper trail considerably more visible than it used to be.
What you will need to put down
Most short-term rental loans land between 20% and 30% down. Below 25% you should expect a rate bump. Run the difference explicitly: a lower down payment improves your cash-on-cash return if the property carries the higher rate, and destroys it if it does not.
Whose revenue number counts
Not yours, and not a screenshot from an analytics tool. Lenders order their own appraisal, typically including a rent schedule from a licensed appraiser.
Projections from GoDoor or anywhere else are for screening deals. They are a strong starting estimate and they are useful for knowing which properties are worth an application. No lender will underwrite from them, and you should be suspicious of anyone implying otherwise.
Where regulation meets financing
If a market caps permits and the property does not hold one, some lenders will discount the projected income or decline the file entirely. The regulatory question is not separate from the financing question. Check the rules before you pay for an appraisal, not after.
Questions worth asking on the first call
- What DSCR do you need to see, and how does pricing move as it rises?
- Do you use a market rent schedule, and does it reflect short-term or long-term rates?
- What is your minimum down payment, and where is the rate breakpoint?
- Are there prepayment penalties, and for how long?
- Do you lend in this specific city given its short-term rental ordinance?
That last question saves the most time. A lender who has never funded a property in a capped market is going to learn on your file.
