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. Look at the three together and the whole picture gets easier to manage.

When a lender prices a loan on a property you won't live in, it is pricing risk. Each of the three requirements is tied to that risk. A larger down payment lowers the loan-to-value, so the lender has less money at stake, and that improves the loan's pricing. A higher credit score signals lower default risk (a lower chance you'll stop making payments), and that 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 the loan. Change any one of the three and you've changed the risk the lender is holding. That's why the three are best understood together rather than shopped one at a time.

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

Conventional investment-property down payments start at a minimum Fannie Mae sets, 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 minimums are firm: as of October 2026, Fannie Mae's Eligibility Matrix (dated 5 Aug 2026) 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 property. DSCR (debt service coverage ratio) programs, which qualify a loan on whether the property's rent covers its payment, set their own requirements. The reason to go above the minimum isn't only a smaller loan; it's pricing. That's where the link between down payment and rate comes in.

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. Occupancy here means how you'll use the property, not how often it's booked.

Fannie Mae publishes a loan-level price adjustment (LLPA) matrix: a grid of upfront pricing adjustments, expressed in price (that is, in points), that grow as loan-to-value rises and as credit score falls. Investment properties carry 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. Moving up a credit tier (the score band the grid prices you in) or adding a few percentage points to your down payment can move your pricing more than shopping a fifth lender for the same risk profile. (Rate levels move constantly with the market, so get today's numbers from a lender when you apply. What lasts 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. PITIA means principal, interest, taxes, insurance and any homeowners-association dues. Reserves aren't a fee and they aren't spent at closing; they're proof you can keep paying through a slow stretch.

For a conventional investment-property loan run through Fannie Mae's automated underwriting system, Desktop Underwriter (DU), the Selling Guide (B3-4.1-01, dated 08/07/2024) requires six months of the property's full payment in reserve after closing, plus 2% to 6% of the unpaid balances on any other financed properties except your home, depending on how many you have (as of October 2026). DSCR programs set their own requirement, often scaling with loan size and seasonal markets, and portfolio lenders set theirs. A financed STR actually has three different liquidity requirements, and lumping them together is how investors get caught short:

• Closing liquidity — the cash you actually spend at closing: your down payment plus closing costs and prepaids (items paid in advance). 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, plus any extra for other financed properties.

• Operating liquidity — the reserve you size to cover your slowest off-season months, 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.