Did you know that U.S. short-term rental bookings reached a staggering 26.4 million nights in July 2025, with average daily rates climbing above $351, a 6.9% increase from the previous year. The market is booming, and the opportunity to capitalize on high-demand properties is at an all-time high.
However, this growth comes with a challenge: securing financing quickly enough to seize the right property. Conventional lenders often scrutinize personal income and credit scores, leaving many investors sidelined despite the strong earning potential of a short-term rental.
DSCR loans offer a solution for investors seeking to move quickly, capture high returns, and avoid missing out on prime opportunities in this rapidly expanding market.
What Is a DSCR Loan?
A DSCR (Debt Service Coverage Ratio) loan is a type of financing where lenders evaluate a property’s ability to generate enough income to cover its debt obligations.
DSCR loans focus on the cash flow produced by the property itself. This makes them particularly useful for investors in income-generating real estate, such as short-term rentals. The higher the DSCR, the more comfortably a property can pay its debt, which typically increases the likelihood of loan approval and may even lead to better terms.
Major features of DSCR loans include:
- Approval is based primarily on the property’s income, not personal income.
- Financing tailored for investment properties, including short-term rentals.
- Lenders use the DSCR ratio to gauge risk and determine maximum loan amounts.
Understanding how DSCR loans work helps investors evaluate opportunities more confidently and ensures that each property they consider can support its own financing.
How DSCR Is Calculated for Short-Term Rentals
Before applying for a DSCR loan, it’s important to understand how lenders determine whether a property can support its debt. The Debt Service Coverage Ratio (DSCR) compares a property’s income against its debt obligations, giving lenders a clear picture of risk.
DSCR Formula:
| DSCR = Net Operating Income (NOI) / Annual Debt Service |
For example, a short-term rental that generates $60,000 annually in rental income, with operating expenses totaling $15,000 per year. This results in a Net Operating Income (NOI) of $45,000. If the annual debt service for a mortgage is $36,000, the DSCR would be:
DSCR = 45,000 / 36,000 = 1.25
A DSCR of 1.25 indicates the property produces 25% more income than needed to cover its debt, which generally meets or exceeds lender requirements for loan approval.
Major factors in DSCR calculation include:
- Net Operating Income (NOI): Total rental revenue minus operating expenses, excluding debt payments.
- Annual Debt Service: The total yearly amount required to cover principal and interest on the loan.
- Thresholds: Lenders typically look for a DSCR of 1.20 or higher, indicating the property generates 20% more income than needed to cover debt.
- Adjustments for occupancy and seasonality: Short-term rentals often experience fluctuating occupancy rates, so lenders may apply conservative estimates to projected income.
A solid grasp of these calculations enables investors to realistically assess whether a property can support the desired loan amount, informing smarter investment decisions.
Why Are DSCR Loans Ideal for Short-Term Rentals?
Short-term rental investors often face unique challenges when securing financing. Traditional loans may require personal income verification, strict credit checks, or long approval timelines that can slow down acquisitions or limit investment opportunities.
Benefits of DSCR loans for short term rentals include:
- Income-focused approval: Lenders assess the property’s rental income to determine loan eligibility.
- Faster processing: Approval timelines are often shorter compared with conventional financing.
- Flexible property types: Suitable for single-family homes, condos, or multi-unit short-term rentals.
- Better leverage opportunities: DSCR-based evaluation can allow higher financing amounts if the property generates strong income.
- Reduced reliance on personal income: Borrowers with limited W-2 income or non-traditional income sources can still qualify.
By emphasizing the property’s ability to pay for itself, DSCR loans give investors the flexibility to expand their short-term rental portfolios without relying solely on personal financials.
Pros and Cons of DSCR Loans for Short-Term Rentals
Like any financing option, DSCR loans come with distinct advantages and limitations that investors need to weigh before committing.
| Pros | Cons |
| Streamlined Approval Process | Higher Interest Rates |
| Easy To Scale | Stricter Property Requirements |
| Attractive for Investors | Potential for Larger Down Payments |
Requirements for DSCR Loans on Short-Term Rentals
Securing a DSCR loan involves meeting specific lender criteria that demonstrate both the property’s income potential and the borrower’s ability to manage debt. While each lender has its own policies, several standard requirements help determine loan eligibility. Understanding these upfront can improve approval chances and streamline the application process.
DSCR Threshold
Lenders require a minimum DSCR of 1.0, meaning the property must generate enough income to cover its debt payments fully. A higher DSCR provides added comfort to lenders, indicating a more substantial margin for unforeseen expenses, vacancies, or market fluctuations. Short-term rental income projections play a critical role in achieving this threshold.
Down Payment
Most DSCR loans require a down payment between 20% and 30%. The exact percentage depends on the borrower’s experience, creditworthiness, and the type of property. A larger down payment reduces lender risk and can improve loan terms, potentially lowering interest rates and increasing approval odds. Demonstrating financial commitment also signals responsibility to the lender.
Credit Score
Borrowers typically require a minimum credit score of approximately 660. Higher credit scores can secure more favorable rates and terms, reflecting the lender’s confidence in repayment ability. While DSCR loans emphasize property income, personal credit remains an important factor, particularly for first-time investors or those with limited short-term rental experience.
Property Type
Eligible properties must be residential income-producing units, including single-family homes, condos, or multi-unit buildings. Short-term rental platforms like Airbnb or VRBO are often considered acceptable, but lenders may scrutinize location, occupancy trends, and regulatory compliance. The property’s income potential is critical in determining both loan eligibility and DSCR calculations.
Market Data
Lenders often require documentation supporting projected rental income, such as historical data, market comparables, or occupancy reports. Reliable market data helps lenders assess risk, ensuring the property’s revenue can sustain debt obligations. Demonstrating thorough research and realistic projections strengthens your application and builds confidence in the loan’s viability.
Personal Liquidity
A savvy lender will require around 4-6 months of interest payments minimum in personal liquidity, meaning cash on hand. This is cash that you can tap into in case you have a slow booking season
Tips for Maximizing DSCR Loan Approval
Securing a DSCR loan for a short-term rental depends not only on meeting lender criteria but also on presenting a compelling, low-risk investment profile. Taking steps to strengthen your application can improve your chances of approval and potentially secure better terms.
- Enhance Property Appeal: Upgrades and thoughtful renovations can increase nightly rates and overall rental income, boosting your DSCR.
- Maintain Accurate Records: Detailed documentation of income and expenses demonstrates transparency and reliability to lenders.
- Select Prime Locations: Properties in popular or high-demand areas tend to exhibit stronger occupancy and revenue potential.
- Build a Strong Rental History: A consistent track record of bookings and positive reviews adds credibility and reassures lenders.
By proactively optimizing these factors, investors can position themselves for smoother approvals and stronger financing outcomes.
Secure Flexible Financing for Your Next Investment From Bluestone
Access to the right financing can make all the difference in seizing profitable property opportunities. Bluestone Commercial Capital offers lending solutions that help investors act quickly, manage renovations, and maximize returns.
Here’s how Bluestone can support your investment:
- Bridge Loans: Fast approvals and funding for time-sensitive property acquisitions.
- Fix-and-Flip Loans: Capital to renovate and resell properties efficiently.
- Custom Financing Solutions: Flexible terms aligned with your project’s unique needs.
Explore your options, secure the right financing, and take your short-term rental investment to the next level.