Reserves Required for a Short-Term Rental Loan

A short-term rental file on our DSCR program carries nine months of reserves: the three-month base that applies to any loan with a DSCR of 1.00 or higher, plus a six-month add-on that attaches specifically to short-term rentals. Reserves are measured in months of PITIA on the subject property, they are verified before funding, and they sit on top of your down payment and closing costs — money used to close cannot be counted twice.

That is the whole answer. The rest of this page is what actually decides whether your file clears: which base tier applies, what counts as PITIA when the loan is interest-only, which accounts count toward the nine months and at what discount, and which money the program will not look at no matter how much of it you have.

The base requirement

Reserves on the 1-4 unit investor program are tiered off the debt service coverage ratio itself.

Two things to notice. It is months of PITIA — principal, interest, taxes, insurance and association dues — not principal and interest alone; taxes and insurance push the requirement up. And it is PITIA for the subject property only. The base tier does not multiply by the number of rentals you own.

The short-term rental add-on

The add-on is stated flatly, with no tier and no offset. It stacks on whatever base the file lands in.

Here is the part that resolves the arithmetic for almost every short-term rental borrower: the six-month base tier is unreachable on an STR file. Short-term rentals require a DSCR of 1.25x or better, so a file qualifying on short-term rental income cannot land in the below-1.00 tier and still be eligible. The base is always three months. Three plus six is nine, and nine months of PITIA is the number to plan around.

What makes a property a short-term rental here

A short-term rental is a property in which the rental term is less than 12 months, relatively variable in duration — a weekend, two weeks, several months — and may not be subject to a traditional lease agreement. 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.

That definition is what triggers the add-on. Note the wording of the reserve line: the additional six months is required for short-term rental, tied to the rental type rather than the income method used to qualify. The guideline does not spell out what happens to a property with short-term rental history placed on a signed long-term lease and qualified on that lease. Raise it as an underwriting question before you order the appraisal rather than build a budget on an assumption.

What counts as PITIA — and what changes on interest-only

Reserves are a multiple of the payment, so the payment definition matters as much as the month count.

The DSCR calculation uses the note rate for principal and interest, real estate taxes from the title policy or a current tax bill converted to a monthly amount, the insurance premium from the approved insurance certificate converted to a monthly amount, and association fees as shown on the appraisal or a current association statement. The same components build the PITIA your reserves are measured against.

Taxes and insurance are escrowed on this program. Escrows for taxes are required and collected at closing. Insurance escrows are collected on most loans, and are not required only where the policy is a blanket policy including other properties or coverages tied to the specific operation of the business, or where the borrower requests it with a FICO of 700 or better.

On an interest-only loan the measurement changes. Interest-only is permitted on standard and blanket loans for a 10-year interest-only period, DSCR may be calculated using the ITIA payment, and reserve requirements are based on the ITIA payment. ITIA is the same set of components with the principal portion removed, so the required dollar amount drops even though the month count does not. The short-term rental section confirms interest-only is permitted with qualification on ITIA, and sets the minimum DSCR at the program minimum determined by individual loan characteristics plus 0.10.

A worked illustration

Assume a $450,000 short-term rental purchase at the maximum 60% LTV that applies when short-term rental income is used to qualify: a $270,000 loan and $180,000 down before closing costs.

Now the reserve stack.

So the cash picture is $180,000 down, plus closing costs, plus $23,652 still sitting in eligible accounts after the loan funds — roughly twenty-four thousand dollars that a down-payment-only budget does not have.

The same file on the 10-year interest-only option is measured on ITIA. Interest-only at the assumed rate is $1,772, so ITIA is $2,442 and nine months is $21,978 — about $1,674 less.

On the income side of the same illustration: gross short-term rental income of $4,300 a month is multiplied by 80% to account for costs associated with operating a short-term rental property, giving $3,440 against a $2,628 PITIA, or a 1.31 DSCR — clear of the 1.25x floor. The 80% factor and the documentation behind that gross figure are covered on [how short-term rental income is discounted on a DSCR loan](/blog/how-lenders-discount-airbnb-income-on-a-dscr-loan). This page assumes you already have a qualifying rent and are asking what has to be in the bank behind it.

Which assets count, and at what discount

Reserves must be liquid, held in a US account, and documented. Two of the most recent months of account statements are required from the borrower, guarantor, primary guarantor or the borrowing entity, including inter vivos revocable trust assets, and the verification must show sixty days of account activity.

The retirement line is the one that changes plans. A 401(k) balance counts at 70 cents on the dollar, so the $23,652 in the illustration above would need roughly $33,800 in a retirement account to satisfy it alone. Note the distinction the table draws: evidence of liquidation is required when retirement funds go toward down payment or closing costs, while for reserves the requirement is evidence of access for employer-sponsored accounts — and an account with no withdrawal mechanism is ineligible outright.

What cannot be counted

• Gift funds. They cannot be used to meet reserve requirements, and cannot be used to meet post-closing liquidity or P&I reserve requirements. A borrower may use up to 50% of the total required down payment and closing cost from gift funds from an acceptable close relative, but that money stops at the closing table.
• Gift of equity. Not permitted.
• Cash-on-hand. Not permitted.
• Virtual currency, unless it is converted to US currency and deposited into an eligible asset account, with documentation showing the funds coming from a digital currency account owned by the borrower or guarantor.
• Non-vested or restricted stock accounts, non-vested stock options, and stock held in an unlisted corporation.
• Unsecured loans or cash advances, including advances on revolving credit cards or lines of credit, and down payment assistance programs.
• Interested party contributions. Contributions from the seller, builder, real estate agent or broker, lender or affiliates may only be used for closing costs and prepaid expenses and may not be used for down payment or reserves, with a maximum of 3% of the purchase price.
• Proceeds from the sale of non-real estate assets, and funds that are not vested or seasoned where the source cannot be verified.

Two ways the requirement moves

Cash-out proceeds. Cash-out may be used for reserves if FICO is above 700 — the same refinance that pulls equity out can fund the nine months. It is conditioned on the score, and the program minimum is 660 for all guarantors, so a borrower between 660 and 700 does not have this route.

Portfolio loans and vacancy. On a portfolio loan, an additional six months of PITIA is required — nine months in total — for vacant transactions. A portfolio loan is categorized as a vacant transaction when 25% or more of the included properties are vacant, on either a purchase or a refinance or cash-out.

Why the add-on exists

The guideline states the six-month add-on without explaining it. The rest of the short-term rental section explains it well enough.

A long-term rental is underwritten off a signed lease: a fully executed contract with an eligible tenant, at a rate consistent with the local market, covering 100% of the square footage of the unit. It is a promise of a specific amount of money for a specific number of months. Short-term rental income has no such instrument. The program builds a qualifying rent from a 1007 or 1025 comparable rent schedule prepared by the appraiser on a purchase, or on a refinance from a most recent 12-month rental history statement from a third party rental or management service, or 12 months of the borrower's bank statements evidencing rental deposits.

Two lines in that method say everything about volatility. The history is capped at 125% of market rent, which means the program declines to underwrite an exceptional trailing year as if it were permanent. And in the instruction for building the 12-month average: if rent was not received during a month, use $0 for that month. The program expects zero-revenue months. It is written into the arithmetic.

Layer on the rest of the short-term rental posture and the direction is consistent. Maximum 60% LTV where short-term rental income is used to qualify, against higher leverage elsewhere in the program. A minimum DSCR of 1.25 rather than 1.00. Gross rent multiplied by 80% to account for the costs of operating a short-term rental. Inexperienced investors are not permitted to qualify via short-term rental at all — an experienced investor being one whose primary guarantor has owned and managed commercial or non-owner-occupied residential real estate for at least 12 consecutive months in the most recent three years, or has held ownership in three or more properties each for at least 12 months over the past 24 months.

Each is the same judgment expressed differently: revenue that arrives nightly, moves with the season, and depends on the operator is not the same asset as a signed twelve-month lease. Lower leverage protects against value risk. Higher DSCR protects against income risk in a typical month. Reserves protect against the specific failure mode of this asset — a quarter with no bookings, a delisting, an ordinance change — where the payment is still due and the revenue is not. Nine months of PITIA is how long the file is expected to carry itself with the calendar empty.

Local regulation is part of that picture. All loans must be originated in accordance with federal, state and local regulations and restrictions pertaining to short-term rentals, and New York City short-term rentals are not permitted. Whether a specific ordinance, permit or association rule allows your intended use is a question for your attorney and your municipality.

How this differs from our commercial reserve standard

If you have read our commercial page on reserves, do not carry its number over. The two programs measure different things.

On the commercial side the standard is six months of post-closing liquidity measured in months of the qualifying principal-and-interest payment for the subject property — no taxes, no insurance, no association dues. On the DSCR side it is three or six months of PITIA, which includes them. The full commercial treatment, including how cash-out proceeds interact with the six-month requirement there, is on [how much cash reserves you need for a commercial loan](/blog/how-much-cash-reserves-do-you-need-for-a-commercial-loan). Use that page for a commercial file and this one for a 1-4 unit investor file.

What trips people up

Budgeting the down payment and calling it done. In the illustration above the reserve requirement adds another 13% of the down payment on top of it, sitting behind the closing, untouched.

Assuming the three-month tier because the DSCR is strong. A 1.40 DSCR on a short-term rental still carries nine months. The add-on does not scale off the ratio at all.

Counting the retirement account at face value. Thirty percent comes off before it is applied.

Planning to use a gift for reserves. It cannot be done on this program, in any amount, from any donor.

Letting the balance drift after approval. Reserves are verified prior to funding. Spending the reserve account down to cover an appraisal, an inspection or a lock fee between approval and closing can reopen the condition.

What this page does not do

This page is not an approval, a quote, a rate sheet, or a commitment to lend. Nothing here reserves terms or pricing.

It does not price your loan. Rate, points and the resulting payment determine the dollar value of every month of reserves, and none are set here — the illustration uses invented figures and is labelled as such.

It does not address how your short-term rental income is calculated or documented beyond a summary; the 80% factor, the 125% cap and the documentation behind a qualifying rent are covered separately.

It does not cover reserve requirements on the small balance commercial program, which are measured differently, or on any program other than the 1-4 unit investor product.

It does not tell you whether short-term rental use is legal at your address. Zoning, permitting, licensing, occupancy taxes and association rules are questions for your attorney, your accountant and your municipality.

And it does not resolve edge cases that the guideline leaves to underwriting — including how a property with short-term rental history that is placed on a long-term lease is treated for the add-on. Bring that to us with the address and the lease before you spend money on third-party reports.

Guideline DSCR V28 · Reviewed August 31, 2026

Published September 1, 2026 · Updated September 1, 2026