Hard Money Rental Loans

Build a portfolio of passive income

Short Term Rental Loans

30-year fixed product for stabilized short term rental properties

Current as of

Interest Rate

from 6.125%

Origination fee

1 - 2%

Loan To Purchase Price

up to 80%

Loan To Value

up to 80%

Minimum DSCR

None

Instant Term Sheet

Yes

Term

30-yr fixed rate

Minimum Loan Amount

$150,000

Maximum Loan Amount

$3,000,000

Minimum FICO

660

Type of Property

Residential 1-8 units

Short Term Rentals

Yes

How Do Short Term Rental Loans Work?

Short term rental (STR) loans are tailored to the specific needs and challenges of the short term rental market. These loans are typically used to cover the purchase of a short term rental property, such as an Airbnb vacation rental property, and the expenses associated with it. Short term rental loans are usually assessed based on the rental income potential of the property, and not as heavily on the individual’s financial situation.

Short term rental loans have varying lengths, lasting anywhere from 5 to 15 years. Lenders will typically use the Debt Service Coverage Ratio (DSCR) of the property to determine loan eligibility. Which means that lenders look at the income generating potential of the property, and subtract the expenses from this to work how well the debt can be serviced by the income. Along with this, a borrower’s personal income will be considered to an extent in the approval process.

The interest rates on short term rental loans are higher than long term rental loans due to the riskier nature of these loans. They typically offer variable rates, but some fixed rate options can be found. Short term rental loans typically have an LTV maximum of about 80%, so borrowers will need to contribute about 20-25% of the property’s purchase price as a down payment.

STR Loan Requirements


Qualification Guideline
1. Loan-to-Value (LTV) Ratio 80%
2. Debt Service Coverage Ratio None
3. Maximum Loan Amount $150,000 - $3,000,000
4. Credit Score 660 Minimum
5. Property Type and Use Residential 1-8 units
6. Number of Properties Owned No Minimum
7. Minimum DSCR No

How To Qualify For A Short Term Rental Loan

Short term rental financing is more risky for lenders because these are investment properties and not primary residences. As a result, qualifying for short term rental loans means being able to show that the property will generate enough income to cover the loan repayments each month. Each lender has different requirements, but here are a few considerations to bear in mind before applying for loans for short term rentals.

Credit Score

A strong credit score, typically 660 and above, is a good starting point when it comes to qualifying for short term rental financing. The higher your credit score, the less risky you will be for a lender.

Down Payment

Short term rental financing requires higher down payments than traditional loans. A down payment of around 20-25% of the property’s purchase price is often required.

Income Verification

Income verification will be required in the form of pay stubs, tax returns and bank statements. Along with this, short term rental income projections will need to be made, to show the property’s earning potential.

Debt-To-Income Ratio

A borrower’s debt-to-income (DTI) ratio is important because it indicates the ability to manage the additional debt. Lenders typically prefer a DTI ratio that is lower than 45%. However, if the property has the potential to earn a high short term rental income, then lenders may be more lenient with this.

Experience

The more experience with short term rentals that a borrower has, the more likely a lender is to approve their loan as they can demonstrate a successful track record of investing in short term rentals.

Why Are DSCR Loans So Popular With Investors?

DSCR loans are asset-based, which means that the main factor determining loan viability is the property’s ability to generate income. DSCR loans are designed for investment properties, and loan terms are geared toward opportunities like short term rentals. The main benefit of using DSCR loans for vacation rental property investments, is that they are not restricted by individual income and they lend themselves to portfolio expansion based on the positive cash flow of existing properties.

DSCR loans are easier to qualify for than conventional loans, so investors who may not qualify for traditional loans can often get DSCR loans. A variety of borrowers are able to get DSCR loans so this appeals to investors who can get DSCR loans tailored to their investment strategy.

DSCR loans offer faster loan approvals which is particularly useful for real estate investors, and flexible terms than can be structured for investments like short term rentals. Along with this, they offer tax benefits to investors in some cases, which is another big plus.

Others Ways To Fund Short Term Rental Properties

While DSCR loans are a popular choice for short term rental property financing, there are other options to consider which could offer similar flexibility and asset-based funding.

Hard money loans

Hard money loans are short-term, asset-based loans provided by private lenders. They are often used for fix-and-flip properties but can also be applied to short term rental investments. They are often easier to qualify for than traditional loans, and offer the added benefits of fast funding and flexible loan terms.

Crowdfunding

Crowdfunding offers a way for individuals to secure funding for a project or venture by tapping into the collective power of online communities. Essentially, a group of people come together to make small investments, which collectively add up to meet the financial goal. It’s an efficient and quick method to raise the necessary funds for a wide range of projects like short term rental investments.

Home Equity

If you already own property with a significant amount of equity, this can be tapped into, to finance the purchase of a short term rental property. Home equity can be accessed in the form of a home equity loan, which is paid out as a lump sum, or a Home Equity Line of Credit (HELOC) which acts like a credit card.

Seller financing

In some cases, the property seller may be willing to finance the purchase directly. Also called owner financing, this is often seen in markets where traditional financing is difficult to obtain or when sellers want to close deals quickly. The loan terms for seller financing can be flexible and often negotiable.

Hard Money Loans

Data driven hard money lending. Get your loan in under 10 minutes

Frequently Asked Questions

Yes, both Airbnb and VRBO properties can qualify for short term rental financing, however this largely depends on the lender. Lenders have different rules around the types of properties that they will cover, and this hinges on the income-generating potential of the property.

 

Vacancy rates can impact the loan terms on short term rental financing. A higher vacancy rate shows that the property is unoccupied a lot of the time, which means its less likely to generate a high rental income. This is a higher risk because it could impact the overall cash flow of the property and result in the property not being profitable enough to repay the loan.

Generally, rural properties aren’t considered for vacation rental loans, however there are some exceptions. Rural properties are considered a higher risk for investors because they could have a lower demand than suburban areas. As a result, lenders that do offer funding for rural areas are likely to have stricter qualifying criteria for a short term rental property.

Additional Resources

DSCR Loan

A DSCR Loan is a unique loan product designed specifically for real estate investors. The cash flow status of the rental property is incorporated into the loan terms. It is very well suited to rental property investors.

DSCR Loan Interest Rates

Find out the latest DSCR Loan Interest Rates here. This guide explores what rate you are likely to qualify for.

DSCR Loan Requirements

First and foremost there must be a rental property to evaluate, but there are other DSCR Loan Requirements.

DSCR Loan Pros & Cons

There are advantages and disadvantages associated with DSCR Loans. This guide outlines all the DSCR Loan Pros & Cons.

Best DSCR Lenders

Simply put, some lenders are better than others. This guide reviews the Best DSCR Lenders at this moment in time.

DSCR Loan For Airbnb

It is definitely possible to get a DSCR Loan For Airbnb properties. Short term rentals qualify for DSCR Loans.

DSCR Loan vs Hard Money Loan

This investor guide explains the key differences between a DSCR Loan vs Hard Money Loan.

DSCR Loan vs Conventional Loan

This investor guide explains the key differences between a DSCR Loan vs Conventional Loan.

DSCR Loan Calculator

This DSCR Calculator makes it easy to workout DSCR Ratio, and it also estimate maximum loan amount and monthly repayments.