A short-term rental's gross income does not reach the DSCR calculation at face value. Two adjustments sit between what your booking platform paid you and what we can use to qualify the loan: an 80% multiplier applied to gross monthly rent, and, on a refinance, a ceiling of 125% of market rent applied to your 12-month collection history before that multiplier runs.
Those two numbers combine in a way most owners do not expect. Multiply them together — 125% × 80% — and you get 100%. That is the whole story in one line: no matter how far above market rent your Airbnb or Vrbo grosses, the qualifying income on a short-term rental refinance cannot exceed 100% of the property's market rent. A cabin grossing three times what an annual lease would produce qualifies at the same number as a cabin grossing exactly 125% of market rent. Everything above that ceiling is invisible to the file.
This page is about that arithmetic — the order the adjustments run in, the evidence each one needs, and how to compute your own number before you order an appraisal.
The two adjustments, in order
The program treats a short-term rental as a property where the rental term is less than 12 months, relatively variable in duration — a weekend, two weeks, several months — and that may not be subject to a traditional lease agreement.
For that property type, the DSCR calculation is defined explicitly:
The 80% multiplier is not negotiable and it is not an expense analysis. It is a flat haircut standing in for cleaning, turnover, platform fees, management, utilities, supplies and vacancy. You do not get to document lower actual expenses and recover the other 20%. The guideline gives no mechanism for that.
The 125% cap is separate, and it applies only where the qualifying income comes from your own operating history — that is, on a refinance. It caps the input, not the output. The order matters:
1. Establish market rent from the appraiser's comparable rent schedule.
2. Take your average monthly gross collections over the most recent 12 months.
3. Cap that average at 125% of market rent.
4. Multiply the capped figure by 80%.
5. Divide by PITIA (or ITIA) to get DSCR.
Run the cap after the average and before the haircut. Running them in the other order, or applying the cap to the post-haircut number, produces a figure that is wrong in your favor and will not survive underwriting.
Where the gross rent number comes from
The evidence differs by transaction type, and the difference is larger than most borrowers assume.
Purchase
On a purchase there is no 12-month history to use, and the program does not want one. Gross monthly rental income comes from a Form 1007 or 1025 comparable rent schedule prepared by the appraiser. The seller's booking records, their revenue screenshots, their AirDNA export — none of it is an input.
The guideline states the point directly in its own illustration: even if the property has short-term rental history, market rent will be used.
So a purchase runs one adjustment, not two. Market rent × 80%. There is no cap to apply because there is no history to cap.
Refinance
On a refinance you must produce one of two things:
- The most recent 12-month rental history statement from a third-party rental or management service, not to exceed 125% of market rent. The statement must identify the subject property or unit and the rents collected for the previous 12 months; or
- The most recent 12 months of bank statements from the borrower evidencing rental deposits, not to exceed 125% of market rent.
Either way, the borrower must provide rental records for the subject property to support the monthly deposits. Bank statements on their own are not sufficient — a deposit is only usable if the records tie it to this property. If you self-manage across several units and everything lands in one account, that reconciliation is your job, and it is the single most common reason a short-term rental refinance stalls at document review.
Why the ceiling lands exactly at market rent
Here is the result written out. Take market rent of $2,800 per month, which is the number the appraiser's rent schedule supports for an annual lease.
- The cap: $2,800 × 1.25 = $3,500
- The haircut: $3,500 × 0.80 = $2,800
The qualifying income equals market rent. Not approximately — exactly, because 1.25 × 0.80 = 1.00.
That means the best possible outcome for a short-term rental refinance is to qualify at the same monthly income a plain twelve-month lease would have produced. All the operational work, the higher gross, the nightly-rate optimization — none of it moves the qualifying number once your collections clear 125% of market rent. Below that threshold, more gross does help. Above it, it does nothing.
> Illustration only. Figures below are invented for arithmetic clarity and are not a quote, a rate, or an approval.
Market rent per the appraiser's rent schedule: $2,800/month
| Average monthly gross collections | After the 125% cap | After the 80% haircut | Qualifying income as a share of your gross |
|---|---|---|---|
| $2,000 | $2,000 | $1,600 | 80% |
| $2,800 | $2,800 | $2,240 | 80% |
| $3,500 | $3,500 | $2,800 | 80% |
| $4,500 | $3,500 | $2,800 | 62% |
| $5,200 | $3,500 | $2,800 | 54% |
| $8,400 | $3,500 | $2,800 | 33% |
Read the last column. An owner grossing $8,400 a month keeps a third of it for qualifying purposes. That is the number that surprises people, and it is not a penalty for anything — it is just where 125% and 80% intersect.
The full illustration, with a payment attached
Same property. Market rent $2,800. Twelve months of third-party management statements showing $62,400 collected, an average of $5,200 per month.
| Step | Figure |
|---|---|
| Average monthly gross collections (12 months) | $5,200 |
| Market rent per Form 1007 | $2,800 |
| Cap: market rent × 1.25 | $3,500 |
| Allowable gross rent (lesser of collections and cap) | $3,500 |
| Short-term rental haircut: × 0.80 | $2,800 |
| Qualifying monthly income | $2,800 |
| Illustrative PITIA | $2,450 |
| DSCR: $2,800 ÷ $2,450 | 1.14 |
The owner walked in expecting a DSCR built on $5,200 — which against a $2,450 payment would have been 2.12, comfortable by any measure. The file computes 1.14. Short-term rentals require a DSCR of at least 1.25x, so this loan does not work as structured. To reach 1.25 on $2,800 of qualifying income, PITIA has to come down to $2,240 or less, which means a smaller loan amount.
That gap — 2.12 in the owner's head versus 1.14 in the file — is the entire reason this page exists. Nothing was disallowed. No expense was disputed. The arithmetic simply ran.
Months with no rent count as zero
This is the second thing that quietly shrinks the number, and it hits seasonal properties hardest.
The 12-month history is an average across all twelve months. Where no rent was received in a month, that month enters the average as $0. There is no adjustment for a shoulder season, a renovation, a self-use block, or a market that only books sixteen weeks a year.
Practically: if you are buying a seasonal property and intend to refinance on its own numbers later, the calendar you keep in year one becomes the underwriting file in year two. A month you blocked for yourself is a zero.
What "market rent" means here
Market rent is the denominator of the cap, so its definition matters as much as the cap itself. Two passages in the guideline bear on it and they do not sit comfortably together.
The appraisal requirements section states that market rent estimates must be based on an annual lease for residential purposes, on FNMA Form 1007 (1 family) or 1025 (2-4 family) plus Form 216, and that short-term or specialized-use rental rates are not acceptable for use as market rent.
The short-term rental section, describing the purchase case, says the 1007 or 1025 comparable rent schedule may reflect long-term or short-term market rents.
Both statements are in the same current version of the guideline. The appraisal-requirements language is written as a general prohibition; the short-term rental language is narrower and specific to the purchase rent survey. We are not going to pretend that reads cleanly.
What else changes when you qualify on short-term rental income
The income discount is the core mechanic, but it does not travel alone. Choosing to qualify on short-term rental income moves several other dials at once. Each of these is covered in its own depth elsewhere on this site; here is what they are so you can price the whole decision:
- Maximum 60% LTV on all standard and cross-collateralized (blanket) transactions using short-term rental income to qualify.
- Minimum DSCR of 1.25x, against a program that otherwise permits ratios below 1.0 in defined circumstances.
- Additional 6 months of PITIA reserves are required for short-term rentals, on top of the base requirement.
- Inexperienced investors are not permitted to qualify via short-term rental income at all. See our separate coverage of the experience definition and what counts toward it.
- On a 2-4 unit property, the property is deemed a short-term rental if 50% or more of the units are being used as short-term rentals — which means half your building can pull the whole file into this treatment.
- New York City short-term rentals are not permitted.
- All loans must be originated in accordance with federal, state and local regulations and restrictions pertaining to short-term rentals.
Interest-only, and the DSCR you have to clear
Interest-only is permitted on short-term rentals. When it is used, the DSCR is calculated on the ITIA payment rather than PITIA, and the minimum DSCR is the program minimum as determined by individual loan characteristics plus .10.
The base requirement still stands: short-term rentals require a DSCR of at least 1.25x. Interest-only lowers the denominator, which is often what closes the gap in a file like the illustration above — but it does not change the numerator, and the numerator is where the cap and the haircut live.
Owned less than twelve months
If you bought the property recently, you may not have twelve months of history to produce. The guideline addresses this narrowly: properties owned six months or more but less than twelve months may be considered on a single-loan variance basis, with the income calculation at the program's discretion.
Read the hedging exactly as written. "May be considered" is not "will be approved," and "at the program's discretion" means there is no published formula for how a seven-month history gets annualized. Do not build a timeline around it. Under six months of ownership, the guideline gives no path at all for qualifying on the property's own short-term income.
The requirement that the history be twelve months, and what a compliant statement has to contain, is covered in its own right elsewhere on this site.
The mistakes that cost the most
Using gross bookings instead of collections. The evidence is rents collected — what the management statement shows as received, or what actually hit the bank account. Forward bookings and pending payouts are not history.
Assuming a strong operating record substitutes for an appraisal. It does not. Market rent sets the cap, so a five-star, fully booked property with a weak rent schedule is capped by the rent schedule.
Comparing the wrong two numbers. Owners routinely compare short-term gross to long-term rent and conclude the short-term route is obviously better for financing. The comparison that matters is qualifying income to qualifying income: market rent × 0.80 on a purchase, or up to market rent × 1.00 on a refinance, against 100% of gross market rent for a conventionally leased property on a purchase — and up to 110% of market rent on a conventionally leased refinance, since a lease running above the appraiser's figure is usable but the qualifying amount cannot exceed the market rent by more than 10%.
Forgetting the reserves. Six extra months of PITIA is real cash that has to be verified, liquid, and separate from your down payment and closing costs.
What this page does not do
This page explains one mechanic: how short-term rental income is discounted and capped inside the DSCR calculation on The Fiirm's 1-4 unit investor program, under DSCR guideline V28. It is not an approval, not a quote, not a rate sheet, and not a commitment to lend.
It does not price your loan. Rate, term, prepayment structure and the LTV you actually receive depend on credit, loan amount, property type, state and the full file. The minimum FICO on this program is 660 for all guarantors; the middle score is used, and where there are several guarantors the lowest middle score drives rate and LTV. Clearing the minimum is an eligibility gate, not a price.
It does not cover, in any depth: the twelve-month history requirement as a documentation standard; the 125% cap as a standalone topic with its own edge cases; the 50%-of-units test on 2-4 unit properties; the additional reserve requirement for short-term rentals; the rules for first-time and inexperienced investors; or the New York City prohibition. Each of those has its own page.
It does not address zoning, permitting, licensing, occupancy taxes, HOA restrictions or local short-term rental ordinances. Whether you may legally operate a short-term rental at a given address is a question for your attorney and the municipality, not for us — and the program requires that every loan be originated in accordance with the federal, state and local rules that apply.
It does not give tax advice. The 80% haircut is an underwriting convention, not a statement about your deductible expenses. Your accountant owns that question.
For related reading on how vacancy is treated at the property level, see [DSCR loan on a vacant rental property](/blog/dscr-loan-on-a-vacant-rental-property). For the credit-side requirement that sits alongside the 660 minimum, see [how many tradelines you need for a DSCR loan](/blog/how-many-tradelines-do-you-need-for-a-dscr-loan).
Guideline DSCR V28 · Reviewed August 31, 2026
Published August 31, 2026 · Updated August 31, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.