Short term rentals or Airbnb properties have become extremely popular over the past decade. Not only do these properties offer an opportunity to vacation in a private setting versus a hotel, but it also can be a great investment for people who are interested in purchasing a home to use as a short term rental.
Short Term Rental Loans – Airbnb Loans
One of the challenges when purchasing a home to use as a rental property is finding the right short term rental loan. If you are a high income earner, you may be able to qualify using your income and tax returns. However, not everyone has the income to support their primary residence plus the mortgage and expenses for a short term rental.
These are some of the mortgage programs you can utilize to purchase a short term rental:
Stated Income Loan
One of the programs that can work is a stated income loan. With this program, you are not required to provide tax returns and you simply state the income that makes sense for the type of work that you do. This helps in scenarios where your income is lower than average or if you do not have steady employment.
Bank Statement Loan
The next program is a bank statement loan which is typically available to self employed borrowers. With this program, you will qualify solely based upon the average monthly deposits into your business or personal bank accounts.
Lenders who offer this program will require a down payment of at least 20% for a property that is not your primary residence. You can read more about bank statement loans here.
DSCR Loan for Airbnb
The DSCR loan is the most popular and best mortgage program for Airbnb or short term rental properties. With this program, you do not need to show income and no employment is needed. You will qualify solely on the potential cash flow of the property.
With the DSCR loan, you will be required to put a minimum of 20% down depending upon your credit score. The minimum credit score requirement will be somewhere in the low 600’s. However, the down payment may be higher if your credit scores are lower
Lenders will evaluate the rent potential for the property. Some will only look at what the home can rent for using a monthly or annual lease. Other lenders may allow the use of Airbnb rent potential based upon how their calculations.
The DSCR loans typically have a prepayment penalty and at some point in the future, you can also refinance for a better rate or to cash out equity.
Read more about DSCR loans.
Airbnb Hard Money Loans
Hard money loans are a great way to purchase a property quickly when you need to close fast and when there is competition from others bidding on the property.
Hard money loans are considered to be a short term option because the interest rate on this type of loan is extremely high. If you do not plan to hold onto the property for very long or will be refinancing in less than 12 months, then an Airbnb hard money loan may be a good option for you.
What you can expect is to pay a few points and for the interest rate to be greater than 12%. If this is what you would like to use to purchase an Airbnb short term rental home, then we can help.
Short Term Rental Lenders
You will have multiple options for short term rental lenders depending upon your credit scores, down payment, ability to document your income, and length of time you plan to hold onto the mortgage.
Conventional Lenders – With a conventional lender, you will need to provide all of your income and employment information. The requirement is to qualify while including all of your other debt including the mortgage on your primary home.
Benefits of the conventional loan is you will likely get the lowest interest rate. The negatives aspect of the conventional loan is most individuals do not have enough income to qualify.
Non QM Lenders – A Non QM lender is one that may offer an alternative mortgage program where income documentation is loosely collected. They will offer programs such as the bank statement loan mentioned earlier or even a stated income loan. Both of these programs do require that you either own a business or that you have employment.
Benefits of a Non QM Lender is the ability to qualify for a short term rental purchase without fully documenting your income. The negative is there are still measurements which may prevent you from accumulating multiple short term rental properties.
DSCR Lenders – The DSCR lender is likely going to be the best option for you when purchasing or refinancing a short term rental property. If you have the down payment and the credit scores and the home appears to be cash flow positive, you should have no difficulty getting approved for the mortgage.
The benefits of a DSCR lender are the ability to qualify much more easily and the competitive rates offered. The negative is the uncertainty of how the lender may calculate the monthly rent potential. Plus, some lenders may not consider what you can get for the property using Airbnb rents and may only look at what the monthly lease would be.
Short Term Rental Mortgage FAQ
Can you get an SBA for Airbnb?
SBA loans are used to help businesses to get started or to help existing businesses to grow. The SBA 7(a) and 504 loans can be used to purchase or improve real estate for business purposes.
The property must meet the SBA criteria and at least 51% of the square footage will need to be used for your business. This also means the remainder of the property can be occupied as your primary residence.
Can You Host on Airbnb if You Have a Mortgage?
There are no restrictions to hosting an Airbnb or VRBO if there is a mortgage on the property. Most homeowners do not own their properties free and clear and therefore have mortgages when making the homes available for rent on Airbnb.
How Much Down Payment Do You Need for an Airbnb?
In most instances, you should be prepared to put at least 20% down on a property that you plan to purchase and use as an Airbnb or short term rental.
Can I Airbnb My Primary Residence Mortgage?
When applying for a mortgage for a primary residence, you are required to live in that property for a minimum of one year. Afterwards, you are permitted to rent to long term tenants or Airbnb short term rental tenants.
