Financing a Short-Term Rental in Washington: Second-Home, Investor, DSCR and Cash

Fannie Mae's occupancy definitions require a second home to be a one-unit property the borrower occupies for some portion of the year, suitable for year-round use, over which the borrower has exclusive control. It must not be a timeshare or rental property and cannot be subject to agreements that give a management firm control over occupancy. Rental income from a second home may exist, but the rental income guideline is explicit that it is not used for qualifying. Freddie Mac's parallel rule allows short-term renting as long as the property is not in a rental pool, not under a mandatory management agreement, and available primarily for the owner's personal use.

In practice that means a Suncadia or Whidbey home you use for holidays and rent yourself, or through a manager on a non-exclusive basis, fits a second-home loan. A Seabrook home enrolled in a mandatory community rental program, or a Lake Chelan condo in a rental pool, generally does not. Minimum down payment is about 10%; second-home pricing adjustments added in 2022 make the rate a step above a primary residence but still below investor pricing. You qualify on your own income and debts, so a large Eastside mortgage can be the constraint.

A debt-service-coverage-ratio loan is a non-agency product that sizes the mortgage on the property's income divided by its proposed payment. Market norms as of 2026: 20–25% down, a DSCR of 1.0 or higher for standard pricing and 1.25 or higher for the best terms (some programs go below 1.0 with more equity and a higher rate), credit scores from the low-to-mid 600s, six to twelve months of reserves, and rates above agency investor loans. Lenders document short-term rental income with twelve months of platform statements or, for a property without history, a third-party revenue projection, often haircut 10–20%.

Two features deserve attention. Prepayment penalties are common, usually stepping down over three to five years, so a plan to refinance into an agency loan once the property has a tax-return history needs to price the penalty. And because the loan is made to the property's numbers, a lender's projection becomes the ceiling on price: if the revenue assumption is aggressive, the loan is still made, and you own the shortfall. Run the RexMont cash-flow calculator with the lender's revenue figure, then with 20% less, before you commit.

Every lender requires hazard insurance; the question is whether the policy actually covers nightly guests. Standard homeowners and landlord forms carry business-activity exclusions, and specialist short-term rental insurers write policies built for guest use. Airbnb's AirCover for Hosts provides up to $1,000,000 in host liability coverage and $3,000,000 in host damage protection, and Airbnb's own page says it is not a substitute for personal insurance. Washington's RCW 64.37.050 requires operators to carry $1,000,000 in primary liability coverage or rely on equivalent platform coverage.

Two Washington-specific costs belong in the payment estimate. On the east slope of the Cascades, wildfire exposure is pushing non-renewals and premiums; the state insurance commissioner reports that policies non-renewed or canceled roughly doubled between 2021 and 2025, and insurers must give 60 days' notice of non-renewal under RCW 48.18.2901. On the coast, a federally backed mortgage on a home in a FEMA special flood hazard area requires flood insurance for the life of the loan under 42 U.S.C. 4012a; buying the policy at loan closing avoids the usual 30-day waiting period. Get the quote during the inspection period, not the week of closing.