STR vs LTR DSCR Loans: Same Property, One Gets Denied
Same house. Same 20% down payment. Same lender. One loan gets denied, the other gets approved easily. The only difference is whether you’re buying it as a short-term rental or a long-term rental. Here’s a real numbers breakdown that shows exactly why this happens and what it means for your down payment and approval odds.
How the DSCR Ratio Works
Before getting into the comparison, a quick recap. The DSCR ratio is calculated by dividing the monthly rental income by the full monthly mortgage payment — principal, interest, taxes, insurance, and HOA if applicable. A 1:1 ratio means the rent exactly covers the payment. That’s the minimum most lenders require. Above 1.0 is better. Below 1.0 and you’re likely looking at a denial or a higher required down payment.
The Real Numbers: A Tempe, Arizona Example
To make this concrete, here’s a real example using a property listed at $522,000 in Tempe, Arizona. The assumptions: 20% down, 6.5% interest rate, $150/month for home insurance, $191/month for taxes. That puts the total monthly PITI payment at approximately $2,990.
Now let’s look at what happens to the DSCR ratio depending on how the rental income is calculated.
Long-Term Rental Analysis
Using HouseCanary to estimate long-term rental income, this property comes in at approximately $2,515/month.
DSCR ratio: $2,515 ÷ $2,990 = 0.84
A 0.84 ratio means the rent covers only 84% of the mortgage payment. Most lenders require at least 1.0. At this ratio with 20% down, this loan gets denied. To make this deal work as a long-term rental, the investor would likely need to put 25% down — a larger down payment reduces the loan amount, lowers the monthly payment, and pushes the ratio up enough to qualify.
Short-Term Rental Analysis
Using AirDNA to estimate short-term rental income, the same property projects at approximately $54,800 per year — or $4,566/month when converted to a monthly figure.
DSCR ratio: $4,566 ÷ $2,990 = 1.53
A 1.53 ratio is strong. Even lenders who require a higher threshold of 1.25 for short-term rental properties — some do — this deal clears it comfortably. And because the ratio is so strong, some lenders may approve this at 15% down rather than 20%, since the income provides more than enough cushion.
The Takeaway: Nothing Changed Except the Income Calculation
The property is identical. The purchase price is identical. The down payment is identical. The only variable is how the lender calculates the rental income — long-term comps versus short-term rental projections.
Long-term: 0.84 ratio → likely denied at 20% down, needs 25% Short-term: 1.53 ratio → strong approval, potentially qualifies at 15% down
That’s the difference between a deal that doesn’t work and a deal that works with room to spare. It’s also the difference between needing to bring more cash to closing versus less.
What This Means for Your Strategy
If you’re buying a property in a market with strong short-term rental activity — Scottsdale, Tempe, Sedona, a beach market, a ski town — it’s worth running both analyses before you go under contract. The market you’re buying in needs to support short-term rental comps, and the appraiser needs comparable STR data to produce a credible rent schedule. But if those conditions are met, structuring the loan as a short-term rental can be the difference between a deal that pencils and one that doesn’t.
A few things to keep in mind:
- Not all lenders use AirDNA data — some rely solely on the 1007 rent schedule with STR comps
- Some lenders require a higher minimum ratio (1.25) for short-term rental loans
- Every lender handles this a little differently, so working with someone who knows which lenders are most favorable for STR deals matters
FAQ
Can I use short-term rental income to qualify for a DSCR loan? Yes. Many lenders will accept short-term rental income projections from AirDNA or a 1007 rent schedule using STR comps to calculate the DSCR ratio.
Why is the DSCR ratio so much higher for a short-term rental? Short-term rentals generate significantly more income than long-term rentals on the same property — often nearly double. That higher income produces a much stronger DSCR ratio, which makes it easier to qualify and potentially allows for a lower down payment.
What if I want to buy as a long-term rental but the ratio comes back below 1.0? You may need to increase your down payment to 25% or more to lower the monthly payment enough to hit the required ratio. Alternatively, you can explore the DSCR no ratio loan program, which removes the ratio requirement entirely.
Do all lenders use AirDNA for short-term rental income? No. Some lenders use AirDNA projections, others rely solely on the 1007 rent schedule with STR comps, and some use a blend of both. The approach varies by lender.
What markets work best for short-term rental DSCR loans? Markets with a high concentration of existing short-term rentals — tourist destinations, vacation markets, major metro areas — work best because appraisers have ample comparable data to support the income analysis.
I’m a short-term rental owner and operator myself — if you have a specific property you want to run numbers on, send me the address and I’ll help you analyze the deal. Austin Clarence | NMLS #1509690 | (602) 737-2576 | aclarence@nexamortgage.com