DSCR Loans for Airbnb

August 14, 2023

DSCR Loans for Airbnb and other Short Term Rental Properties

DSCR loans for Airbnb and other short term rental properties are a great option for investors versus conventional financing. DSCR loans, or debt service coverage ratio loans, are a type of mortgage that lenders use to determine a borrower’s ability to repay a loan based on the rental income of the property being financed instead of a real estate investors personal income or tax returns. This makes DSCR loans for Airbnb and other short-term rental properties a good option for long term financing. As the rental income from these properties are generally much higher than long term rent leases Airbnb and other short term rental properties have been a good investment for many real estate investors. The problem for investors and lenders this income can be more volatile than the rental income from long-term rentals. This is why the short term rental income does not qualify for conventional financing options.

Here are some of the benefits of DSCR loans for Airbnb and other short-term rental properties:

Easier to qualify for. DSCR loans don’t require borrowers to provide proof of income, such as tax returns or W-2s. This can be a major benefit for self-employed borrowers or borrowers with a lot of debt.
Higher maximum loan amount. The maximum loan amount for DSCR loans for Airbnb could be $2,000,000 or more. This is much higher than conventional financing, which means that borrowers can finance larger properties with these loans.
No restrictions on the number of properties you can buy. There are no restrictions on the number of properties you can buy with a DSCR loan for Airbnb. This can be a good option for investors who want to build a large portfolio of short-term rental properties.
Good interest rates. DSCR loans typically have slightly higher interest rates than conventional mortgages. These rates are much lower than rates on bridge and hard money loans. This is because DSCR loans for Airbnb are considered to be riskier loans than long term rental loans.

Here are some of the cons of DSCR loans for Airbnb and other short-term rental properties:

High down payment requirements based on credit score and cash flow. DSCR loans for Airbnb typically require a 20% to 25% down payment. This is because DSCR loans are considered to be riskier loans.
Higher Closing costs. If you could qualify for a conventional loan or your short term rental property you will pay slightly lower closing costs and slightly lower rate.
Higher minimum credit scores. Typically the minimum credit score is 660, but to qualify for the lower down payments a borrower needs 680 to 72 score or better.

Finally

Overall, DSCR loans for Airbnb and other short term rental properties can be a great option (if not the only option) for borrowers who want to finance short-term rental properties. However, it’s important to weigh the benefits and drawbacks of these loans before deciding if they’re right for you.

Here are some additional things to consider when applying for a DSCR loan for Airbnb and other short-term rental property:

The property’s location and demand for short-term rentals.
The property’s condition and amenities.
Your experience as a short-term rental manager.

If you’re considering a DSCR loan for Airbnb or other short-term rental property FBC Funding specializes in funding short term rental properties and has many great financing options.

Call today at 888-848-3114