Investing in a short-term rental is a great way to build generational wealth, achieve true financial freedom, and live your American Dream. Many people start with the same question: How do I qualify for a short-term rental loan? This hinges on your circumstances.
With the help of cutting-edge short-term rental intelligence powered by STR Verifi, a short-term rental calculator that provides accurate data on any property and market, allowing you to forecast ROI with unparalleled accuracy, and with an MBANC interest-only DSCR loans, obtaining financing is easier and faster than ever before.
What Do Lenders Consider for a Short-Term Rental Loan?
It’s important to get some context before we answer the question, What do you need to qualify for a short-term rental loan? Risk is the primary consideration for lenders when financing a short-term rental property.
Short-term rental investors rely on rental property income from tenants to pay back their loans. If you cannot find tenants consistently, this impacts how reliable you are when making loan payments.
Additionally, self-employed individuals with unconventional income streams are considered higher risk by traditional lenders. Another consideration is this will not be your primary residence.
This poses a risk because, in the face of financial hardship and struggles, you will likely prioritize payments on your primary residence and not the short-term rental that you recently invested in.
What Do You Need to Qualify for a Short-Term Rental Loan?
Short-term rental loan requirements vary by borrower. From the property type to your credit history, here is what you need to qualify for a short-term rental mortgage:
Property Type
The first step in determining what you need to qualify for a short-term rental loan is to classify the type of property you intend to purchase.
Financing Options
It is crucial to understand that, as a borrower, you have several financing options available. Conventional loans are a common choice that provides good rates, but they can have:
- A long closing process
- Strict, prohibitive requirements
- Limited short-term rental mortgage options
Cash-out refinancing is also a good option compared to home equity lines of credit and home equity loans. These loans can also have lower interest rates than the original mortgage and offer a chance to consolidate debt.
Interest-only DSCR loans are some of the best options for financing a short-term rental. With these loans, you use the projected income from a property to qualify for financing, not W-2s or tax returns, and keep your monthly payments low.
This results in a scalable, streamlined financing option that has fewer hoops to jump through. You also only have to pay the interest for the first few years before paying the mortgage while setting up your property, so it pays for itself.
Debt-to-Income Ratio and Credit History
Lenders will look closely at your debt-to-income ratio (DTI) and credit history to determine whether or not you are a good candidate for financing, and they are linked.
Your credit score can make or break whether or not you receive financing in many situations. If you have a spotty credit history, many lenders will not be comfortable with helping you finance a property. Your credit history also impacts your DTI.
Ultimately, the DTI requirements vary from lender to lender. Some lenders prefer a maximum DTI of 43%, while others will be OK with a DTI of 50%.
Down Payment and Paperwork
A down payment and paperwork are also essential when answering, What do you need to qualify for a short-term rental?
A down payment is generally standard when purchasing property, but the down payment you need depends on the type of loan, type of property, your credit history, and more.
Paperwork is standard, but some loans minimize paperwork to streamline the process. Interest-only DSCR loans are a great example of this.
“Generally, the road to financing is paved with paperwork. But the beauty of interest-only DSCR loans is that you don’t need W-2s or tax returns to qualify. You can qualify with the projected income using a report from software like STR Verifi easily and quickly to make this process as painless as possible.” – Desh.
Self-Employed Mortgage Solutions for Real Estate Investing
So, What do you need to qualify for a short-term rental loan? A mortgage lender that caters to, and celebrates, self-made people like you. Leveraging an interest-only DSCR loan with a short-term rental calculator like STR Verifi empowers you to create generational wealth and achieve the financial freedom the American Dream is built on.