Down Payments, Rates, and Reserve Requirements for an STR

Three requirements, one risk profile

An investment loan's down payment, rate, and reserves aren't three separate line items to negotiate one at a time — they're three expressions of the same thing: how much risk the lender is taking, and how much of it you offset. See them as a system and the whole picture gets easier to manage.

A lender pricing a loan on a property you won't live in is pricing risk. Each of the three requirements is a dial on that risk. A larger down payment lowers the loan-to-value, which lowers the lender's exposure — and improves the loan's pricing. A higher credit score signals lower default risk — and improves the pricing again. Reserves prove you can keep paying through a rough stretch — which is why the lender requires you to have them available before it will fund. Move any one dial and you've changed the risk the lender is holding, which is why the three are best understood together rather than shopped in isolation.

Down payment: set by rule at the floor, by leverage above it

Investment-property down payments start at an agency-set minimum, but the figure that matters for your rate is how far above that floor you go — because down payment and rate are directly linked. More equity isn't just a bigger check; it's a cheaper loan.

On the conventional side, the agency minimums are firm: as of September 2026, Fannie Mae's Eligibility Matrix caps a one-unit investment purchase at 85% loan-to-value — at least 15% down — and a two-to-four-unit purchase at 75%, or at least 25% down. In practice, investors often put more down — commonly in the 20–25% range on a one-unit — and DSCR programs set their own requirements. The reason to go above the minimum isn't only a smaller loan; it's pricing. Which brings us to the mechanism that ties down payment to rate.

Rate: your risk profile, priced into the loan

The rate you're quoted on an investment property reflects your risk profile: market conditions set the pricing environment, then loan-level price adjustments — driven by occupancy, loan-to-value, and credit — adjust the loan's price, which your lender delivers to you as a rate-and-points combination. This is why two borrowers on the same property get different quotes.

Fannie Mae publishes a loan-level price adjustment (LLPA) matrix — a grid of upfront pricing adjustments (expressed in price, i.e. points) that grow as loan-to-value rises and as credit score falls, with investment properties carrying some of the steepest adjustments in the system. Importantly, you don't take a base rate and add the LLPA to it: the LLPA changes the loan's price, and the lender converts that price into the rate-and-points options you're shown. You don't need to memorize the grid; you need its shape — more down and a higher score move you into cheaper pricing; less down and a lower score into more expensive pricing. That's the lever. Improving your credit tier or adding a few points of down payment can move your pricing more than shopping a fifth lender for the same risk profile. (Rate levels move constantly with the market — get today's numbers from a lender when you apply; what's durable is the LLPA structure, not this week's rate.)

Reserves: liquidity after closing, not cash at the table

Reserves — months of the full housing payment (PITIA) the lender requires you to have available after closing — are a distinct liquidity requirement, not part of the cash you hand over at the table. They aren't a fee and they aren't spent at closing; they're proof you can keep paying through a soft stretch.

For a conventional investment-property loan underwritten through Fannie Mae's Desktop Underwriter, the Selling Guide requires six months of the property's full payment in reserve after closing (as of September 2026), and DSCR programs set their own requirement (often scaling with loan size and seasonal markets). The key insight is that a financed STR really has three different liquidity requirements, and lumping them together is how investors get caught short:

• Closing liquidity — the cash actually consumed at the table: your down payment plus closing costs and prepaids. This is the real "cash to close."

• Lender-required reserves — assets you must have available after closing (you don't spend them; you prove them). This is the six-months-of-PITIA figure.

• Operating liquidity — the reserve you size to your off-season trough, which protects the deal all year (see How Loan Structure Interacts With Seasonal STR Cash Flow).

The first is money you spend; the second and third are money you keep available. Plan all three separately — only the first is "cash to close," the lender's reserve protects the lender, and your operating reserve protects the deal.