A short-term rental can gross three times what the house next door collects on an annual lease, and our DSCR program will still not credit it above 125% of that property's market rent. The ceiling is hard, it is applied before the operating-cost reduction, and on a purchase it does not exist at all — market rent is simply used, whatever the booking history shows.
That single number is the reason so many high-performing beach, ski and desert rentals appraise well and still fail to qualify at the leverage the owner expected. The gross receipts are real. They just stop counting at a fixed multiple of what a long-term tenant would pay.
This page covers where the 125% ceiling sits in the calculation, how market rent is established for the comparison, the unresolved tension in our own guideline text about whether short-term rates can inform market rent, and what all of it means if you are buying in a market where nightly rates run far ahead of lease rates.
The rule, stated plainly
On a refinance, we determine gross monthly rental income for a short-term rental from one of two documents: a 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. Either one is subject to the same limit.
Two mechanical details in that rule do more damage than borrowers expect.
The first is that the ceiling applies to the average, and the average is computed over twelve months with zeros filled in for vacant months. A property that grosses heavily for five months and sits empty for seven is averaged across all twelve. The zeros are not skipped.
The second is that 125% is a ceiling on the input, not the output. After the average is capped, a further reduction is applied to account for the costs of operating a short-term rental. That reduction is a separate rule with its own arithmetic, and it is covered in detail in [how lenders discount Airbnb income on a DSCR loan](/blog/how-lenders-discount-airbnb-income-on-a-dscr-loan). What matters here is the order: cap first, then reduce.
Where the ceiling actually binds
Run the two rules in sequence and the outcome is worth stating directly, because almost nothing written about DSCR short-term rental lending says it.
The most qualifying income a short-term rental can ever produce on a refinance is exactly 100% of the property's long-term market rent. The 125% cap and the 80% operating factor multiply to 1.00. No amount of gross revenue moves the number past that point.
Our own guideline illustration makes this concrete. A property with $1,200 market rent per appraisal and a twelve-month collection average of $3,000 is first capped at $1,500 (1,200 × 1.25), then reduced to $1,200 (1,500 × 0.80). The property grossed $3,000 a month and qualifies on $1,200 — the same figure a boring annual lease at market would have produced.
Purchase transactions have no history path at all
On a purchase, there is no rental history to submit and no 125% calculation to run. Gross monthly rental income is determined from a 1007 or 1025 Comparable Rent Schedule survey prepared by the appraiser. The guideline is explicit on the point of confusion: even if the property has short-term rental history, market rent will be used.
So the purchase ceiling is 100% of market rent before the operating reduction, and 80% of market rent after it. A buyer acquiring a proven short-term rental from a seller who will hand over three years of booking records gets no credit for any of it. The records are not part of the file for income purposes.
This is the single largest surprise in short-term rental acquisition financing, and it interacts badly with the way these properties are priced. Sellers price on gross revenue. We qualify on 80% of long-term market rent. In a market where nightly rates run three times lease rates, the two numbers are not close, and the gap is bridged entirely with the buyer's own cash.
How market rent is established
Because everything in the short-term rental calculation is a multiple of market rent, market rent is the number that actually decides your loan. It is not negotiated, and it does not come from your revenue.
Market rent is established by the appraiser on a market rent comparable schedule — FNMA Form 1007 for a one-family property, or FNMA Form 1025 plus Form 216 for a 2-4 family property. The schedule must be provided. The valuation must also include all three approaches to value: sales, income and cost.
The comparable requirements are specific. There must be at least three comparables in the same zip code or within one mile of the subject property, and at least one comparable must be within one mile with limited net adjustments, unless otherwise approved.
Two consequences follow. First, market rent for your beach cottage is derived from what annual tenants pay for comparable houses in the same neighborhood, not from what visitors pay for a week in July. Second, if the comparable long-term rental market near your property is thin — which is common in resort areas where most inventory is short-term — the appraiser is drawing from a small pool, and a low or poorly supported market rent figure propagates through every number in your file.
The tension in the guideline text — presented honestly
There is a genuine internal inconsistency in our DSCR guideline on this exact point, and it is worth showing rather than smoothing over.
The Short-Term Rentals section, describing how to determine gross monthly rental income on a purchase, calls for a "1007 or 1025 Comparable Rent Schedule survey prepared by the appraiser reflecting long-term or short-term market rents."
The Appraisal section's valuation criteria says the opposite in two places: market rent estimates "must be based on an annual lease for residential purposes," and "short term or specialized use rental rates are not acceptable for use as market rent."
Both passages sit in Version 28 of the same document. Neither carries a date stamp distinguishing it from the other, and the change log does not record a revision that reconciles them. We are not going to pretend one silently overrides the other.
What the ceiling means in a high-ADR market
Put numbers on it, clearly labeled as an illustration.
The following figures are invented for the purpose of showing the mechanism. They are not a quote, and they are not drawn from any specific market.
| Long-term rental | Short-term rental, same house | |
|---|---|---|
| Gross monthly receipts | $2,000 | $6,000 |
| Market rent per appraisal | $2,000 | $2,000 |
| Ceiling applied | 110% of market rent | 125% of market rent |
| Income after ceiling | $2,000 | $2,500 |
| Operating factor | none | 80% |
| Qualifying monthly income | $2,000 | $2,000 |
| Maximum LTV using this income | per matrix | 60% |
| Minimum DSCR | per matrix | 1.25x |
Same house, same appraised value, triple the revenue, identical qualifying income — and the short-term rental version carries a lower leverage cap and a higher coverage requirement.
The strategic conclusion is uncomfortable but clean. Under this program, short-term rental operation does not improve your financing. It caps your credited income at roughly what a long-term lease would produce, cuts your maximum leverage to 60%, raises your minimum DSCR to 1.25x, and adds reserves. The revenue premium is real economically. It is invisible to the loan.
That does not make short-term rentals a bad investment. It makes them a bad qualifying strategy. If the property also supports a defensible long-term market rent and you can qualify on a conventional investor structure, the terms available are better. The short-term rental path is for properties and borrowers where that is not an option.
The rest of the short-term rental box
The 125% ceiling does not travel alone. Anything qualifying on short-term rental income carries the full set:
- Maximum 60% LTV for all standard and cross-collateralized (blanket) transactions using short-term rental income to qualify.
- Minimum DSCR 1.25x. This is also restated in the DSCR restrictions section.
- Interest-only is permitted. On interest-only the minimum DSCR is the program minimum as determined by individual loan characteristics plus .10, and you qualify on ITIA rather than PITIA.
- An additional 6 months of PITIA reserves is required for short-term rental, on top of the program's base reserve requirement.
- Inexperienced investors are not permitted to qualify via short-term rental. An experienced investor is one whose primary guarantor has a history of owning and managing 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 twelve months over the past 24 months.
- New York City short-term rentals are not permitted.
- On a 2-4 unit, the property is deemed a short-term rental if 50% or more of the units are being used as short-term rentals. At that threshold the whole property falls into this box, not just the affected units.
- All loans must be originated in accordance with federal, state and local regulations and restrictions pertaining to short-term rentals.
The minimum credit score on the DSCR program is 660, and at 660 the standard matrix is limited to one-unit properties. Note that the 60% short-term rental LTV cap is more restrictive than most matrix cells anyway, so for most short-term rental files FICO is setting eligibility and loan amount rather than leverage.
The twelve-month history requirement itself — what counts as a qualifying statement, whose name it must be in, what happens when the platform will not produce one — is covered separately in [the 12-month income history requirement for short-term rental loans](/blog/short-term-rental-loan-12-month-income-history-requirement).
Adjacent rules that look like this one but are not
Three other passages in the guideline apply ceilings to rent, and they get confused with the 125% cap constantly.
Long-term leases above market. Where the lease is higher than gross market rent on the appraisal, the amount used for qualifying cannot exceed 10% over market rent. If actual rent exceeds market rent but is within 10%, the lease amount can be used as-is. Different ceiling, different transaction type.
Short-term leases that are not short-term rentals. A property with a lease of less than 12 months that is not listed on any short-term rental website such as Airbnb or Vrbo is limited to 60% LTV, but rental history is not required. That is a distinct category from a short-term rental, and it does not run the 125% calculation.
Fully furnished properties. If there is no lease in place, the property is treated as vacant and a 5% LTV reduction applies — and to be in this category the property cannot be listed on any short-term rental site. If there is a lease in place and current rent is higher than market rent, we revert to market rent.
| Situation | Ceiling on rent used to qualify |
|---|---|
| Long-term lease above market rent | 10% over market rent on the appraisal |
| Short-term rental, refinance | 125% of market rent, then the operating factor |
| Short-term rental, purchase | market rent per 1007/1025, then the operating factor |
| Fully furnished, lease in place above market | revert to market rent |
| Short-term lease under 12 months, not listed on any STR site | no rental history required; 60% LTV |
What actually changes your outcome
Given all of the above, there are only a few levers that move the number.
Support market rent. It is the base of every calculation. Make sure the appraiser has access to genuine long-term lease comparables in the immediate area, and understand that a thin long-term rental market near a resort property works against you.
Do not over-invest in revenue documentation. Once the twelve-month average clears 125% of market rent, additional revenue is worth exactly zero to the file. Assemble a clean, complete, verifiable statement and stop.
Watch the zeros. Months with no rent received enter the average as zero. A property with strong seasonal performance and a long off-season may not reach the cap at all, in which case the ceiling never binds and your actual average is what gets reduced.
Consider whether short-term rental income is needed. If the property can be documented on an annual lease and you can meet standard DSCR terms, the leverage, coverage and reserve requirements are all better. The short-term rental designation is triggered by how the property is used and listed, not by how you would prefer it to be underwritten.
On seasoning between six and twelve months: properties owned for six months or more but less than twelve may be considered on a single loan variance basis, with the income calculation at the program's discretion. A variance is not a right, and a variance request is not a rate lock. Plan for the possibility that it is declined.
What this page does not do
This is a description of how one rule in our DSCR program works. It is not an approval, not a pre-qualification, and not a quote. Nothing here commits us to any loan amount, rate, or term on any specific property.
It does not price your loan. Rate, points, prepayment penalty structure and the specific LTV available to you depend on the full file, and nothing on this page is a pricing indication.
It does not cover the operating-cost reduction applied after the ceiling, or the documentation standards for the twelve-month history itself. Both have their own pages, linked above.
It does not address whether short-term rental use is legal at your property. Zoning, permitting, HOA restrictions, licensing and local occupancy caps are questions for your attorney and your municipality — and our own requirement is that the loan be originated in accordance with the federal, state and local regulations that apply. We do not opine on whether your property complies.
It does not give tax advice. How short-term rental income and expenses are treated on your return is a question for your accountant, and it is not the same question as how we credit income for qualifying.
It does not resolve the inconsistency in the guideline text about short-term market rates as market rent. We have shown you both passages. On a live file we will tell you which figure your loan is being credited on before you commit to an appraisal.
Finally, it does not substitute for a scenario review. Market rent is property-specific and the ceiling is a multiple of it, so the only way to know what your short-term rental will actually qualify on is to run the address.
Guideline DSCR V28 · Reviewed August 31, 2026
Published September 1, 2026 · Updated September 1, 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.