A vacation rental earns money differently from a long-term rental. Income is higher, but it moves with the seasons and the calendar. A lender that only accepts a twelve month lease has no way to price that property, which is why many investors get turned away at the bank.
Short-term rental DSCR programs solve that by using a different income source. Depending on the program, the lender may use an income report from the booking platform, a trailing twelve month history, or a projection from a third-party rental analysis tool.
Who this loan fits
- Investors buying a vacation home they will rent on Airbnb or VRBO
- Owners with an existing short-term rental and a history of bookings
- Buyers in tourist and event markets where nightly rates beat monthly rents
- Operators who use a property manager and want a clean file
How income gets counted
Lenders that accept short-term rental income usually want evidence. For a property already operating, that is twelve months of booking statements. For a new purchase, it is a rental analysis that estimates income based on comparable listings. Some programs apply a haircut to the projection to account for vacancy and expenses.
Because short-term rentals cost more to run, a few programs use a more conservative ratio than they would for a long-term rental. We explain the difference before you commit.
Local rules matter
Many cities and counties regulate short-term rentals. Some require permits or cap the number of nights. Some ban them in certain zones. Check the rules before you make an offer, and keep the permit paperwork. A lender will ask for it, and so will your insurance carrier.
Insurance and management
A standard landlord policy may not cover nightly guests. You typically need a short-term rental endorsement or a dedicated policy. Figure that cost into the payment side of the ratio. It can be higher than long-term rental insurance.
A sample vacation rental
- Purchase price
- $520,000
- Loan amount (70% LTV)
- $364,000
- Projected monthly short-term income
- $4,900
- Principal, interest, taxes, insurance
- $3,360
- DSCR
- 1.46
Illustration only. Programs often discount projected income and may ask for lower loan-to-value than long-term rentals.