DSCR Loans for Airbnb & Short-Term Rentals

DSCR Loans for Airbnb & Short-Term Rentals

Short-term rentals on platforms like Airbnb and VRBO can generate significantly more income than traditional long-term rentals. But financing them requires finding the right lender who understands STR income.

Here's everything you need to know about using DSCR loans for short-term rental properties.

Can You Get a DSCR Loan for an Airbnb?

TL;DR: Yes, but you need an STR-friendly lender who accepts projected short-term rental income.

Yes, but not all DSCR lenders accept short-term rental income. You need to find a lender who specifically allows STR income for qualification.

Lender approaches to STR:

1. STR-friendly lenders - Accept projected STR income from platforms like AirDNA
2. Hybrid lenders - Use the lesser of STR projection or long-term rent
3. Traditional only - Only accept long-term rental income

Make sure you're working with an STR-friendly lender before going under contract. Use our DSCR calculator to estimate your ratio before making an offer.

How STR Income is Calculated for DSCR

TL;DR: Lenders typically use 75% of projected annual revenue from AirDNA, divided by 12.

Unlike long-term rentals where rent is straightforward, STR income calculation is more complex:

Method 1: Third-Party Data (AirDNA, Rabbu)

Most lenders use professional STR analytics:

1. Pull market data for comparable properties
2. Calculate annual revenue projection
3. Apply a haircut (typically 75% of projection)
4. Divide by 12 for monthly income

Example:

• AirDNA projects $72,000 annual revenue
• Lender uses 75%: $54,000
• Monthly income for DSCR: $4,500

Method 2: Actual Operating History

If you're refinancing an existing STR:

• Provide 12-24 months of booking history
• Lender may use actual average income
• Documentation includes platform statements, tax returns

Method 3: Hybrid Approach

Some lenders use the lesser of:

• Projected STR income (at 75%)
• Long-term market rent

This protects the lender if STR regulations change.

STR DSCR Calculation Example

Property Details:

• Beach condo purchase: $450,000
• Down payment: $112,500 (25%)
• Loan amount: $337,500
• Interest rate: 8.25%

STR Income:

• AirDNA projection: $65,000/year
• Lender factor: 75%
• Annual income used: $48,750
• Monthly income: $4,063

PITIA:

• P&I: $2,534
• Taxes: $480
• Insurance: $350 (higher for STR)
• HOA: $400
• Total PITIA: $3,764

DSCR = $4,063 / $3,764 = 1.08

This STR qualifies with a 1.08 DSCR.

STR-Specific Requirements

TL;DR: Expect higher insurance costs, verify local regulations permit STR, and budget for larger reserves.

Higher Insurance Costs

STR properties need specialized insurance:

• Standard landlord policy won't cover STR
• Short-term rental insurance costs 20-40% more
• Some lenders require proof of STR-specific coverage
• Factor this into your DSCR calculation

HOA and Local Regulations

Before buying, verify:

1. HOA allows short-term rentals - Many don't
2. Local regulations permit STR - Check city/county rules
3. Licensing requirements - Some areas require permits
4. Occupancy taxes - Factor into your projections

Lenders may ask for documentation confirming STR is permitted.

Higher Reserve Requirements

Some lenders require additional reserves for STR:

• Standard: 6-12 months PITIA
• STR: May require 12-18 months
• Reasoning: Income is less predictable

Advantages of STR + DSCR Financing

TL;DR: STR income often exceeds long-term rent by 30-100%, enabling better DSCR ratios.

Higher Income = Better DSCR

STR income often exceeds long-term rent by 30-100%. This can:

• Qualify properties that wouldn't work as long-term rentals
• Enable smaller down payments (due to better DSCR)
• Allow you to buy in higher-priced markets

No Income Documentation

Like all DSCR loans, STR DSCR loans don't require:

• Tax returns
• W-2s or pay stubs
• Employment verification

Property Can Close Vacant

You don't need an existing booking history:

• Third-party data projects future income
• Can close and immediately list on Airbnb
• No need to wait for long-term tenant

Challenges with STR DSCR Loans

Fewer Lenders Offer Them

Not every DSCR lender accepts STR income. You may need to:

• Shop more lenders to find STR-friendly options
• Accept slightly different terms
• Work with brokers who specialize in investor loans

Higher Rates Sometimes

Some lenders charge a premium for STR:

• 0.25-0.50% rate increase
• Additional points at closing
• Reasoning: Perceived higher risk

Regulatory Risk

Lenders worry about STR regulations:

• Cities increasingly restrict short-term rentals
• Property might need to convert to long-term
• Some lenders mitigate by using long-term rent as backup calculation

Best Property Types for STR DSCR Loans

Beach and Vacation Destinations

• Consistent demand from tourists
• High nightly rates
• Predictable seasonal patterns

Urban Centers

• Business travelers
• Event attendees
• Year-round demand

Near Attractions

• Theme parks
• National parks
• Ski resorts
• Sports venues

Unique Properties

• Cabins and A-frames
• Treehouses
• Properties with amazing views
• Homes with pools or hot tubs

Tips for STR DSCR Loan Approval

1. Research Before You Buy

• Pull AirDNA data for the area
• Verify STR is legally permitted
• Check comparable property performance
• Calculate DSCR using conservative estimates

2. Choose the Right Lender

• Ask specifically about STR income acceptance
• Understand their calculation method
• Compare rates between STR-friendly lenders

3. Prepare for Higher Costs

• Budget for STR insurance
• Factor in platform fees (Airbnb takes ~3%)
• Account for higher turnover costs
• Include furnishing in your budget

4. Document Everything

If refinancing an existing STR:

• Keep detailed booking records
• Download platform income reports
• Maintain separate accounts for STR income

STR vs. Long-Term Rental: DSCR Comparison

Same Property, Different Strategy:

Factor	Long-Term Rental	Short-Term Rental
Monthly income	$2,800	$4,500 (at 75%)
Insurance	$150	$300
PITIA	$2,697	$2,847
DSCR	1.04	1.58
Lender availability	Most	Select lenders
Management intensity	Low	High

The STR version has a much stronger DSCR but requires more active management.

Scaling Your STR Portfolio with DSCR

DSCR loans are ideal for building a portfolio of short-term rentals:

• Each property qualifies independently
• No limit on number of properties
• No DTI calculation
• Can mix STR and long-term rentals

Hybrid Strategy: STR with Long-Term Backup

Smart investors plan for flexibility:

1. Buy properties that work as both STR and long-term
2. Qualify using long-term rent for more lender options
3. Operate as STR for higher income
4. Convert if needed if regulations change

This approach gives you the best of both worlds: more financing options and higher income potential.

Ready to Finance Your Airbnb Investment?

See if you qualify for an STR-friendly DSCR loan. Our quick assessment will help you understand your options.

Check Your Eligibility Now

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Zac Cook is a licensed mortgage loan originator (NMLS #2111496). This content is for informational purposes only and does not constitute financial advice. Loan approval is subject to credit and property qualification. Equal Housing Lender.