Can I Get a Mortgage for a Short-Term Rental Property?

Summary:

Short-term rental mortgages enable investors to finance Airbnb, VRBO, or vacation rental properties, but lenders treat them differently than primary residences. These loans require strong financials, larger down payments (typically 20-30%), and proof of income potential. For aspiring investors, understanding lender requirements and loan types is critical to avoid rejected applications or unfavorable terms. With stricter 2024 lending standards and volatile STR markets, this guide helps investors mitigate risks while capitalizing on high-yield rental opportunities.

What This Means for You:

• Higher Investment Thresholds: Expect 20-30% down payments vs. 3-5% for primary homes
• Income Documentation: Lenders require 6-12 months of projected rental income (Airbnb calculator spreadsheets recommended)
• Alternative Loan Options: DSCR loans bypass personal income verification if the property cash-flows
• Market Volatility Warning: Some cities restrict STRs – verify local ordinances before applying

Explained: Can I Get a Mortgage for a Short-Term Rental Property?

A short-term rental mortgage finances properties rented for under 30 days through platforms like Airbnb or Vrbo. Legally classified as non-owner-occupied investment properties, these loans carry higher interest rates (typically +0.5-2% over primary mortgages) due to perceived tenant turnover risks. Unlike traditional 30-year mortgages, some STR-specific loans like DSCR (Debt Service Coverage Ratio) mortgages focus solely on the property’s income potential rather than the borrower’s W2 earnings.

In 2024, lenders increasingly use automated valuation models (AVMs) incorporating STR performance data from AirDNA or Mashvisor to assess risk. With major markets like New York City and Los Angeles implementing STR licensing caps, lenders now require “market viability reports” proving the property isn’t in a restricted zone. Over 35% of U.S. lenders now classify STRs as higher-risk “commercial hybrid” loans even for residential properties.

“Can I Get a Mortgage for a Short-Term Rental Property?” Types:

1. Conventional Investment Loans: Require 680+ credit scores and 15-25% down. Pros: Competitive rates (6-7% APR). Cons: Strict debt-to-income (DTI) limits below 45%.

2. DSCR Loans: Underwritten based on property cash flow (minimum 1.25 ratio). Pros: No personal income verification. Cons: Higher rates (7-9%) and 20-30% down payments.

3. Portfolio Loans: Offered by local banks/credit unions. Pros: Flexible terms for experienced investors. Cons: Often include prepayment penalties.

Note: FHA, VA, and USDA loans exclude investment properties, while HELOCs on primary residences can fund STR down payments if allowed per lender terms.

Requirements of “Can I Get a Mortgage for a Short-Term Rental Property?”:

• Credit: Minimum 660 score (680+ preferred)
• Down Payment: 20-30% of purchase price
• Reserves: 6 months of PITIA payments in liquid accounts
• Experience: Some lenders require 2+ rental properties owned
• Documentation: STR income projections or 1-2 years of existing STR financials

“Can I Get a Mortgage for a Short-Term Rental Property?” Process:

Phase 1: Pre-Approval – Submit credit/financial docs; STR-specific lenders verify property eligibility via tools like TransUnion’s STR report.

Phase 2: Application – Provide purchase contract, business plan, and projected Schedule E income. Portfolio lenders may require personal guarantees.

Phase 3: Underwriting – Appraiser evaluates “highest and best use” with STR potential. DSCR loans skip personal DTI checks if ratio exceeds 1.25x.

Phase 4: Closing – Sign documents; wait 3-7 days for funding. LLC titling permitted with commercial loans.

Choosing the Right Finance Option:

Evaluate properties using the 1% Rule: Monthly STR income should exceed 1% of total purchase + renovation costs. Fixed-rate loans suit 5+ year holds, while ARM loans benefit quick-flip investors. Red Flags: Avoid lenders charging >3% origination fees or not disclosing prepayment penalties. Always cross-check rates on Bankrate or Credit Karma.

In supply-constrained markets (e.g., coastal Florida), prioritize portfolio loans for faster closes. For Class C properties, DSCR loans with rehab financing provide optimal leverage. Over-leveraged investors risk denial if multiple STR mortgages exceed lender portfolio limits.

People Also Ask:

Q1: Can I use a traditional mortgage for short-term rentals?
Only if residing there 50%+ of the year per Fannie Mae “limited rental” guidelines. Otherwise, investment loans are required.

Q2: What down payment is needed for an Airbnb property?
20% minimum (25% for multi-unit), rising to 30% if the property has prior STR licensing violations.

Q3: Does Airbnb income count for mortgage approval?
Only if documented for 2+ years via tax returns. Projected income requires an appraiser’s endorsement.

Q4: Are STR loans available for LLCs?
Yes, through commercial lenders (not FHA/VA). Expect slightly higher rates but asset protection benefits.

Q5: Alternatives to mortgages for STR investing?
Seller financing, private money loans, or REIT partnerships. Returns are lower but avoid personal guarantees.

Extra Information:

• IRS Rental Income Guidelines – Tax implications of STR ownership
• Fannie Mae STR Matrix – GSE requirements for vacation rentals
• AirDNA Market Reports – STR performance analytics for 120k+ markets

Expert Opinion:

Securing STR financing demands rigorous cash flow analysis and compliance checks. Investors must model worst-case vacancy rates (30-50% in Q1) and verify lender STR policies upfront. Misclassifying a property as a long-term rental violates mortgage covenants, risking acceleration. Pursue lenders with explicit STR programs like Lima One or Kiavi for smoother approvals.

Key Terms:

• short-term rental mortgage requirements
• Airbnb property loan qualifications
• DSCR loans for vacation rentals
• investment property down payment 2024
• non-owner occupied mortgage rates

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