Unlock the potential of short-term rentals with a DSCR loan, tailored for Airbnb and other rental platforms. With the popularity of Airbnb, Vrbo, and other STR platforms, investing in real estate is now more accessible than ever. However, securing funding can still pose a major roadblock for would-be investors.

A debt service coverage ratio (DSCR) loan is a type of financing that allows borrowers to qualify based on a property’s rental income rather than W-2s or tax returns. This makes DSCR loans an ideal option for financing Airbnbs and other short-term rentals. 

In this guide, we’ll go over how DSCR loans for short-term rentals work, the pros and cons, how it compares to traditional financing, and what it takes to qualify. 

How DSCR Loans Work

A STR DSCR loan prioritizes a property’s debt service coverage ratio over the borrower’s personal income or employment history. The DSCR is a metric that measures a property’s cash flow against its debt obligations. With a DSCR loan, lenders calculate DSCR to determine a borrower’s ability to repay the loan rather than focusing on tax returns, W-2s, and pay stubs.

You can calculate DSCR using the following formula: 

DSCR = Gross Rental Income / Debt Obligation (Principal + Interest)

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Using DSCR Loans for Airbnb: Pros & Cons

Like any other type of investment property loan, DSCR loans for short-term rentals have their benefits and limitations.

Outdoor, woman traveler with yellow suitcase opening closing door of the house.

Benefits

Some of the key benefits of DSCR loans for short-term rentals include the following:

  • No personal income required: The most significant benefit of a DSCR loan for Airbnb and other short-term rentals is the ability to qualify without providing personal income documentation. DSCR loans don’t take into account personal financial information, making them easier for new investors to obtain financing.
  • Faster closing times: Because lenders only have to verify a property’s DSCR and borrowers don’t have to submit personal financial information, DSCRs typically have a faster application and closing process.
  • No limit on the number of properties: DSCR loans allow you to invest in multiple properties simultaneously instead of having to pay off your loan before purchasing a new property.
  • Unlimited cash-out: DSCR loans for Airbnb allow you to take out as much cash as you need based on your home’s equity. Cash-out can help cover costs such as maintenance and repairs to get your rental property back into shape between guests.
  • Separates personal and business finances: If you close in the name of an LLC, you can keep your DSCR loan separate from your personal finances to ensure you pay the loan using business finances.
  • Property multiplier effect: Leveraging DSCR loans for Airbnb and other short-term rentals can have a property multiplier effect. Turn 1 property into 8 properties within 8 years, or 18 properties within 12 years. This is achieved by pulling cash out of the property every 2-4 years in order to capitalize on the equity you’ve built up and appreciation of the home’s value. That money can then be reinvested to expand your real estate portfolio.

Using a DSCR calculator can help you project the property’s income potential and ensure you maintain a good DSCR, making it easier to scale your investment portfolio efficiently.

Limitations

No mortgage loan is perfect, so you should weigh the pros and cons of DSCR loans for Airbnb to determine if they’re right for you. Here are a few of the limitations of DSCR loans for short-term rentals:

  • Large down payment: You can expect a large down payment with any investment property loan because this type of financing is generally considered a higher risk for lenders. Therefore, DSCR loans typically come with higher down payment requirements to mitigate some of the lender’s risk.
  • Potential cash reserves requirement: Short-term rentals like Airbnb rely on your ability to continuously get bookings. Lenders want to know you have a backup plan if you go for long stretches without guests, so they may require a certain number of months of cash reserves to ensure you can repay your loan.
  • Potential for further debt: Vacancies mean your property isn’t generating cash flow, which can affect your ability to repay your loan. If your rental property goes for long periods without a guest, you’re still on the hook for paying off your mortgage loan. Unfortunately, you risk foreclosure without cash flow, which can affect your personal and business finances.

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How to Get a DSCR Loan on a Short-Term Rental

To qualify for a DSCR loan on a short-term rental property, you’ll need to prove through AirDNA comparables that your DSCR will be 1.00 or more.

Here are the requirements for securing DSCR STR financing with Griffin Funding: 

  • Credit score of 640+
  • Minimum DSCR of .75
  • 25% minimum down payment (for borrowers with 1-year of experience operating STRs)
  • 30% minimum down payment (for borrowers with less than 1-year of experience operating STRs)
  • Projected annual revenue divided by 12 months

If you want to refinance your STR with a DSCR loan to lower your interest rate or get cash out of your property, you’ll need to produce a stable history of short-term rental income in order to qualify for a STR DSCR cash-out refinance loan.

In addition, a DSCR HELOAN (home equity loan) can help you leverage the equity in your existing rental properties for renovations or to expand your investment portfolio. This loan type helps you to borrow against your property’s equity based on its rental income, which makes it easier to access funds without relying on traditional income documentation.

With a simple 10-step mortgage process, Griffin Funding strives to make applying and securing a home loan easy, transparent, and quick.

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Secure Flexible Short-Term Rental Financing

STR DSCR loans can benefit new and seasoned short-term rental real estate investors, offering them faster closing times and more flexible lending criteria. Access flexible short-term rental financing to grow your investment portfolio and build your wealth. 

Explore short-term rental loans with Griffin Funding. We allow for DSCRs as low as 0.75 for short-term rentals, but not every investor will qualify for the loan. We can help you determine the best STR financing for your next project. 

You can also use free tools like the Griffin Gold app, our DSCR loan calculator, and our DSCR refinance calculator to gain more insight into your DSCR rental loan options. Get started online today and grow your portfolio with Griffin Funding. 

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Frequently Asked Questions

What qualifies as a short-term rental?

A short-term rental is a property that is rented out for temporary stays, typically less than 30 days at a time, through platforms like Airbnb, VRBO, or similar services.

How do I finance an Airbnb?

There are several options when it comes to financing an Airbnb or any short-term rental. However, a STR DSCR loan for Airbnb offers unique advantages compared to other short-term rental financing options. With a DSCR loan, you can qualify based on a property’s projected rental income rather than your personal income, making it ideal for Airbnb hosts and investors. 

Other short-term rental financing options include: 

Is it hard to get a DSCR loan for an Airbnb?

Getting a DSCR mortgage for an Airbnb is generally easier than a traditional loan since approval is based on the property’s rental income rather than your personal income. However, you'll still need a good credit score, and the property must generate enough rental income to cover the loan payments. Lenders use the debt service coverage ratio (DSCR) to assess this, and a higher DSCR improves your chances of qualifying. While DSCR loans are more flexible, some factors—like additional documentation if buying under an LLC—may still apply.

What documentation do I need to get DSCR financing for an Airbnb?

In order to get DSCR financing for an Airbnb, you may need to provide the following:

  • Personal identification documents
  • Credit report
  • A rent schedule 
  • Tenant/occupancy information
  • Articles of organization (if borrowing in an LLC)

Can I live in a short-term rental that’s financed with a DSCR loan?

No, a property purchased with a DSCR loan cannot be used as a primary residence. It must be used strictly for investment purposes, such as short- or long-term rentals.

Do I need rental history to qualify for a DSCR Airbnb loan?

No, you do not need a rental history to qualify for a DSCR loan for an Airbnb. You can qualify for a DSCR loan using a property’s projected rental income if no rental history exists for the property. In this case, lenders will look at: 
  • AirDNA revenue estimates
  • Comparable short-term rental data
  • Market occupancy rates
  • Seasonal pricing trends
You can also get a DSCR loan for a short-term rental if you don’t have past property management experience. However, keep in mind that you will face a higher down payment and may not qualify for the lowest rate. 

What is the minimum down payment for a DSCR Airbnb loan?

Qualified borrowers with at least 1 year of experience operating short-term rental properties can secure DSCR STR financing with as little as 25% down. If you have less than 1 year of experience operating a short-term rental property, be prepared to put at least 30% down.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 24 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 12 years in business.