DSCR Loans for Short Term Rentals (Airbnb & VRBO Rentals)
DSCR loans have become one of the most popular ways to finance short-term rental (STR) properties like Airbnb and VRBO rentals. DSCR loans are specifically designed for real estate investors and are classified as non-qualified mortgages (non-QM), making them accessible to a wider range of borrowers.
Unlike traditional lenders, who often prioritize personal income over rental income making it challenging for investors to secure financing, DSCR loans qualify borrowers based on property income and not personal income. This makes DSCR loans an ideal solution for investors looking to expand their portfolio of short-term rentals, as well as for STR investors.
What is a DSCR Loan for Short Term Rentals?
A DSCR (Debt Service Coverage Ratio) loan for STRs is a type of investment property loan where approval is based on the projected or historical rental income of the property rather than the borrower’s tax returns or debt-to-income ratio. This loan type is specifically tailored for short-term rental properties making it ideal for investors in Airbnb, VRBO and similar markets. DSCR loans focus on the property's cash flow and the debt service coverage ratio, which measures the property's ability to cover its loan payments, rather than relying on the borrower's personal income.
This structure works especially well for: Airbnb properties, VRBO vacation rentals, seasonal rentals and properties with strong nightly rates but uneven monthly income. For a full overview of DSCR loans, see our main DSCR Loans page
Why DSCR Loans Are Ideal for Airbnb & STR Investors
Short-term rentals often generate higher gross income than long term leases but that income is harder to document using conventional mortgage rules.
DSCR loans solve this problem by:
- Allowing alternative income analysis
- Using market data instead of tax returns
- Ignoring personal DTI constraints
- Allowing LLC ownership
For many investors, DSCR is the only realistic way to finance STR properties at scale. DSCR loans also offer options like interest-only payments and longer terms up to 40 years to maximize cash flow during the property’s early stages.
How Lenders Calculate Income for STR DSCR Loans
This is the most important underwriting difference between STR DSCR loans and standard DSCR loans.
Accepted Income Methods
| Income Method | When Used |
|---|---|
| 12 Month STR History | Existing Airbnb/VRBO listings |
| AirDNA / STR Analyzer | New STR properties |
| Market Rent (Form 1007) | Backup valuation method |
AirDNA & STR Projections Explained
Many DSCR lenders allow income projections using third-party STR analytics platforms. They usually evaluate average daily rate (ADR), occupancy assumptions and comparable STR performance. Occupancy rates are an important factor in estimating the rental income potential of short-term rentals, as they directly impact projected annual income and the overall success of the investment. Short-term rentals have fluctuating earnings based on seasonality and occupancy rates which can complicate financing.
Requirements for STR Properties
| Guideline | Typical Range |
|---|---|
| Minimum DSCR | 1.00 - 1.25 |
| Max Purchase LTV | 75% - 80% |
| Max Cash Out Refi LTV | 65% - 70% |
| Minimum Credit Score | 660 |
| Minimum Reserves | 6-12 months |
Property Types Commonly Allowed for STR DSCR Loans
Property types that can be financed with a DSCR loan include:
- Single-family homes
- Multi-family homes up to 8 units
- Condominiums (warrantable and non-warrantable)
- Townhomes
- Condotels
A property that cannot legally operate as an STR based on HOA restrctions or local laws may be declined regardless of income projections.
Interest Rate and Loan Terms
When evaluating DSCR loans for short-term rentals, understanding the interest rate and loan term is essential for maximizing your investment’s profitability. DSCR loans are often considered higher risk by lenders, which means the interest rate is typically higher than what you’d find with traditional mortgage loans. However, if you have a strong credit profile and your rental income is stable and well-documented, some lenders may offer more favorable rates.
Loan terms for DSCR loans can range from 30 to 40 years, giving short term rental investors flexibility to choose a repayment schedule that best fits their cash flow and investment strategy. A longer loan term can help lower your monthly payments and preserve cash reserves while a shorter term may reduce the total interest paid over the life of the loan. It’s important to compare offers from multiple lenders and carefully review the terms including prepayment penalties and adjustable rate features to ensure the loan meets your goals for your short term rental property. Getting the right interest rate and loan term, allows investors to better manage expenses and maximize returns from their short term rental investments.
Cash-Out Refinance for STR DSCR Loans
DSCR loans are widely used for STR refinances and BRRRR-style strategies. Investors can leverage their equity in an investment property to access funds or improve investment strategies.The Max LTV for a cash out refinance is usually 65% - 70% and the cash can be used for any purpose.
DSCR Loan Tax Implications
DSCR loans come with several tax implications that can benefit short term rental investors. One of the primary advantages is that the interest paid on a DSCR loan is generally tax-deductible, which can help offset the rental income generated by your property and reduce your overall tax liability. Additionally, using DSCR loans to purchase or refinance a rental property may open up further tax benefits, such as deductions for certain closing costs or the ability to depreciate the property.
It’s important to remember that tax laws can vary by state and individual circumstances, so consulting with a qualified tax professional is highly recommended. They can help you navigate the specific rules that apply to your property’s location and ensure you’re taking full advantage of all available deductions. By understanding the tax implications of DSCR loans, investors can optimize their tax strategy and enhance the long-term benefits of their short term rental investments.
Common Mistakes STR Investors Make
Avoid these issues which frequently delay or kill DSCR deals:
- Ignoring HOA STR restrictions
- Overestimating AirDNA income
- Underestimating taxes and insurance
- Choosing a lender unfamiliar with STR underwriting
When DSCR Loans Beat Conventional Loans for STRs
DSCR loans usually make more sense when:
- STR income exceeds long term rent
- Your tax returns show heavy write-offs
- You already own multiple properties
- You want to close in an LLC
It's important to weigh the pros and cons of different types of loans when considering financing options for short-term rental investments.
How to Get Approved for a DSCR STR Loan
The application process for DSCR loans involves several key steps:
- Prequalification: The borrower provides basic information about the property and their financial situation to determine initial eligibility.
- Documentation: The borrower submits detailed documentation, including property leases, property income and expense reports and other relevant documents.
- Property Appraisal: An appraisal is conducted to determine the property's market value and income-generating potential.
- DSCR Calculation: The lender calculates the DSCR based on the property's expenses and total debt service.
- Loan Approval and Closing: The lender evaluates the DSCR and other factors to approve or deny the loan application. If approved, the borrower will sign all of the final loan documents and close on the property.
The loan approval process for DSCR loans focuses on the property’s income rather than the borrower’s personal finances making loan approval easier.
Choosing the Right DSCR STR Loan Lender
When seeking a DSCR loan for your real estate investment, it's important to choose the right lender. Here are some factors to consider:
- Experience with DSCR loans: Look for a lender with a proven track record of successfully originating DSCR STR loans. Experienced lenders will have a good understanding of the unique requirements and challenges associated with these loans.
- Loan terms and rates: Compare loan terms and interest rates from multiple lenders to ensure you're getting the best deal. Pay attention to factors such as loan-to-value ratios, amortization periods and prepayment penalties.
- Flexibility and customization: Every real estate investment is unique so it's essential to find a lender who can tailor their loan products to your specific needs. Look for lenders who offer flexibility in loan structures and repayment options.
- Customer service and support: Choose a lender who is responsive, communicative and dedicated to helping you succeed. A strong customer service team can make the loan process smoother and less stressful.
- Reputation and reviews: Research potential lenders online and read reviews from past clients. Look for lenders with a solid reputation for integrity, reliability and customer satisfaction.
At Alpine Mortgage, we focus on providing you with the knowledge to make informed investment decisions. We offer competitive rates, flexible terms and exceptional customer service making us the ideal partner for your DSCR loan needs.
Whether you're a seasoned investor or just starting out our team is here to help you use DSCR loans to achieve your financial objectives. Contact us today to learn more about how we can help you grow your portfolio and reach new heights in your investment journey. We offer DSCR loans in the following states: California, Colorado, Connecticut, Florida, Georgia, New Jersey, New York, Ohio, Pennsylvania and Texas.
Call us today at (800) 876-5626 to speak with one of our DSCR loan specialists or click here to have one of our DSCR loan specialists contact you. If you are interested in applying for a DSCR loan, you can apply online now.
DSCR Loans for Short Term Rentals FAQs
The interest rate for DSCR depends on the type of property, the amount of the down payment and the loan term. For a customized DSCR loan rate quote, please contact us.
Yes we allow Airbnb or short-term rental income to qualify. Income may be calculated using a 12 month rental history, AirDNA projections, STR analyzer reports or a blended income approach depending on the property type.
No. Many lenders do not require prior short-term rental operating history. New purchases can qualify using market STR data or AirDNA projections even if the property has never been rented before.
Most DSCR short-term rental loans require 20%–25% down. Properties with lower DSCR ratios, luxury homes or seasonal vacation rentals may require additional equity.
Generally DSCR STR loans typically have higher rates than conventional investment loans due to increased risk, income volatility and alternative underwriting methods.
Most DSCR STR loans close in 20-30 days, depending on appraisal timing, documentation and property complexity.
Yes. Prior landlord or Airbnb experience is not required. Many lenders approve first-time investors as long as credit, reserves and property guidelines are met.
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