Short-Term Rental DSCR Loans: Financing Airbnb and Vacation Rental Properties

Short-term rental (STR) properties operated on platforms like Airbnb and VRBO can qualify for DSCR financing, allowing investors to leverage rental income projections rather than personal income documentation. For brokers serving clients in the vacation rental space, understanding STR-specific underwriting requirements unlocks a growing segment of investor financing.

This guide covers STR eligibility for DSCR programs, income documentation options, property requirements, and strategies for successfully closing short-term rental deals.

The Short-Term Rental Investment Landscape

The short-term rental market has matured from a niche strategy to a mainstream investment approach. Platforms like Airbnb, VRBO, and Booking.com have created accessible marketplaces where individual investors can compete with traditional hospitality.

Why Investors Choose STR Properties

Short-term rentals attract investors for several reasons:

Income Potential: Well-located STR properties often generate 30-50% more gross income than comparable long-term rentals, particularly in tourist destinations, event cities, and business travel markets.

Flexibility: Owners retain the ability to use properties personally, block dates for family visits, or convert to long-term rental if market conditions change.

Appreciation Markets: Many STR hotspots—beach towns, mountain communities, urban entertainment districts—also experience strong property appreciation.

Tax Benefits: Short-term rental properties may qualify for business expense deductions beyond standard rental property benefits, including furnishings, supplies, and platform fees.

STR Financing Challenges

Traditional mortgage underwriting struggles with short-term rental income:

• Variable Income: STR revenue fluctuates seasonally and lacks the predictability of 12-month leases
• Operating Expenses: Platform fees, cleaning costs, and supplies create complexity
• Regulatory Risk: Local STR regulations vary significantly and can change
• Property Classification: Some lenders classify STR as commercial, limiting residential options

DSCR programs designed for short-term rentals address these challenges through specialized income documentation and underwriting approaches.

STR Eligibility for DSCR Programs

Not all DSCR lenders accept short-term rental properties, and those that do have specific requirements.

Property Type Requirements

Eligible STR property types typically include:

• Single-family residences
• Condominiums (with HOA approval for STR use)
• Townhomes
• 2-4 unit properties (where some or all units operate as STR)
• PUDs

Properties must be residential in character. True commercial properties (hotels, motels, timeshares) do not qualify for residential DSCR programs.

Location and Regulatory Considerations

Lenders evaluate STR regulatory environment:

Permitted Markets: The property must be in a location where short-term rentals are legally permitted. Lenders may require:

• Business license or permit documentation
• HOA approval letter (if applicable)
• Confirmation that local regulations allow STR operation

Restricted or Prohibited Markets: Some municipalities have banned or severely restricted short-term rentals. Properties in these areas typically do not qualify for STR-based DSCR.

HOA Restrictions: Condominium and HOA-governed properties require confirmation that short-term rentals are permitted under CC&Rs.

Insurance Requirements

STR properties require specialized insurance coverage:

• Short-Term Rental Coverage: Standard homeowner’s policies typically exclude STR use. Policies must specifically cover short-term rental activity.
• Liability Limits: Higher liability coverage is often required given guest turnover and potential claims.
• Platform Insurance: Airbnb and VRBO offer host protection programs, but these supplement rather than replace dedicated STR insurance.

The insurance declaration page must confirm STR coverage is in place.

STR Income Documentation Options

DSCR calculations for short-term rentals use one of several income documentation approaches, each with different requirements and underwriting treatment.

Option 1: Operating History (12-24 Months)

What It Is: Actual rental income from the property’s STR operation, documented through platform reports, bank statements, or tax returns.

Required Documentation:

• Platform income reports (Airbnb, VRBO dashboard exports)
• Bank statements showing STR deposits
• Schedule E from tax returns showing rental income
• Property management statements (if professionally managed)

Underwriting Treatment:

• Most favorable documentation method
• Lenders calculate average monthly income over the documented period
• Seasonal variation is smoothed across the full year
• Strong operating history may support maximum LTV options

Example:

A property with 24 months of Airbnb history showing total gross income of $84,000 would qualify with $3,500/month average rental income.

Option 2: Third-Party Projections

What It Is: Income projections from specialized STR analytics services that estimate rental potential based on comparable properties and market data.

Accepted Projection Sources:

• AirDNA: Market analytics platform providing revenue projections based on comparable STR performance
• Rabbu: Similar projection service with rental income estimates
• Other Services: Mashvisor, Wheelhouse, and similar platforms may be accepted depending on lender

Required Documentation:

• Full property-specific projection report
• Comparison to active listings in the market
• Occupancy rate assumptions
• Average daily rate (ADR) estimates

Underwriting Treatment:

• Higher DSCR thresholds may apply (some lenders require 1.0+ or 1.25+ DSCR)
• Credit score minimums may be elevated
• LTV may be reduced compared to operating history documentation
• Lender may apply haircut to projected income (using 75-90% of projection)

Example:

AirDNA projects $4,200/month rental income. Lender applies 85% factor, using $3,570/month for DSCR calculation.

Option 3: Long-Term Market Rent Comparison

What It Is: Using the appraiser’s market rent estimate as if the property were a traditional long-term rental, regardless of STR operation.

Required Documentation:

• Standard appraisal with Form 1007 rent schedule
• Market rent analysis from appraiser
• Comparable long-term rental data

Underwriting Treatment:

• Most conservative approach
• No STR premium applied to income
• May result in lower DSCR than actual STR potential
• Available at all lenders accepting investment properties

When to Use:

• When STR income documentation is limited
• For properties that could viably operate as either STR or LTR
• When projection services show unfavorable comparisons
• As fallback when STR documentation doesn’t meet requirements

Calculating DSCR for Short-Term Rentals

The DSCR formula remains consistent, but expense considerations differ for STR properties.

STR DSCR Formula

DSCR = Gross STR Income ÷ PITIA

Important: DSCR calculations use gross rental income before platform fees, cleaning costs, or other operating expenses. These expenses are not deducted.

STR Income Considerations

Gross vs. Net Income: Investors often think in net income (after Airbnb fees, cleaning, supplies). DSCR qualification uses gross booking revenue.

Seasonal Adjustment: Annual income should include all seasons. A beach property earning $8,000/month in summer and $2,000/month in winter averages $5,000/month for DSCR purposes.

Occupancy Assumptions: Projection-based income incorporates occupancy estimates. Lenders evaluate whether assumptions are realistic for the market.

DSCR Threshold Expectations

STR-qualifying DSCR thresholds often exceed standard requirements:

Documentation Type	Typical DSCR Minimum	Notes
24-month operating history	1.00	Standard investment property treatment
12-month operating history	1.00-1.10	May require higher DSCR
Third-party projections	1.10-1.25	Elevated due to projection risk
Long-term rent comparison	0.75-1.00	No STR premium; standard DSCR grid

STR Property Appraisal Requirements

Appraisals for STR properties require specific considerations:

Appraisal Form and Scope

Standard residential appraisals (Form 1004 or 1073) apply with rent schedule addendum (Form 1007 or 1025). The appraisal should:

• Identify property as income-producing
• Include market rent analysis
• Note any STR-specific improvements (hot tubs, pools, amenities)
• Comment on local STR market conditions

STR Condition Considerations

Properties operated as short-term rentals should be in guest-ready condition:

• Furnished and equipped for guests
• Safety features installed (smoke detectors, fire extinguishers, etc.)
• No deferred maintenance that would impact guest experience
• Amenities consistent with market competition

Comparable Selection

Appraisers may struggle to find direct STR comparables for value opinions. Sales comparisons typically use:

• Other investment property sales (STR or LTR)
• Properties with similar amenity packages
• Adjustments for income potential where supportable

The appraised value reflects the property’s market value, not a capitalized income approach (which would be commercial methodology).

Credit and Reserve Requirements

STR DSCR loans maintain standard credit requirements with potential adjustments:

Credit Score Tiers

• 700+: Full STR program eligibility, projection-based income allowed
• 680-699: Operating history typically required, projections may be restricted
• 660-679: Operating history required, reduced LTV, limited availability

Higher credit scores provide greater flexibility in income documentation acceptance.

Reserve Requirements

STR properties often require elevated reserves due to:

• Income volatility and seasonal variation
• Higher operating expense ratios
• Potential for vacancy between bookings
• Regulatory uncertainty in some markets

Typical reserve requirements: 6-12 months PITIA versus 3-6 months for standard long-term rentals.

Common STR Scenarios and Solutions

Scenario 1: Experienced STR Investor Expanding Portfolio

Situation: Investor with three successful Airbnb properties (24+ months each) wants to purchase a fourth vacation rental.

Solution: Use operating history from existing properties to demonstrate STR management competence. New property qualifies using AirDNA projections with standard DSCR threshold. Investor experience may support reduced reserve requirements.

Scenario 2: First-Time STR Purchase in Tourist Market

Situation: Long-term rental investor purchasing first Airbnb property in a beach town. No STR operating history.

Solution: Obtain AirDNA or Rabbu projection report. If DSCR using projections exceeds 1.25, proceed with projection documentation. Alternatively, qualify using long-term market rent if the numbers work at standard DSCR thresholds.

Scenario 3: Converting Long-Term Rental to STR

Situation: Investor owns a property that has operated as long-term rental but wants to refinance and convert to Airbnb.

Solution: Cash-out refinance using current long-term lease income for DSCR qualification. Post-closing conversion to STR is a business decision that doesn’t affect the loan.

Scenario 4: Condo in STR-Restricted HOA

Situation: Investor wants to purchase a condo for Airbnb use, but HOA restricts rentals to 30+ day minimum.

Solution: This property doesn’t qualify for STR DSCR. Options include standard DSCR using long-term rent (30+ day rentals qualify as long-term), or selecting a different property without restrictions.

How to Submit STR DSCR Loans to AHL

American Heritage Lending’s Invest Star program accepts short-term rental properties. Here’s the submission process:

Step 1: Confirm STR Eligibility

Before submitting, verify:

• [ ] Local regulations permit short-term rentals
• [ ] HOA allows STR use (if applicable)
• [ ] Property is residential in character
• [ ] Borrower credit score meets minimum (660+, 700+ for projections)

Step 2: Gather Income Documentation

Prepare one of the following:

• Operating History: Platform reports, bank statements, or tax returns showing 12-24 months STR income
• Projections: AirDNA or comparable report for the specific property
• Market Rent: Standard appraisal with Form 1007 (if using LTR fallback)

Step 3: Obtain STR Insurance Quote

Secure insurance quote or binder showing:

• Short-term rental coverage explicitly stated
• Adequate liability limits
• Property address and coverage amounts

Step 4: Submit Through Galaxy Portal

Submit complete package via client.ahlend.com including:

• Loan application
• STR income documentation
• Purchase contract or refinance documentation
• Insurance evidence
• Entity documents (if applicable)

Step 5: Appraisal and Underwriting

We order the appraisal with rent schedule. Underwriting reviews:

• DSCR calculation using appropriate income documentation
• Property condition and STR viability
• Regulatory compliance confirmation
• Credit and asset verification

Frequently Asked Questions

Can I finance a property I plan to convert to STR after closing?

Yes. Purchase using projected STR income (if the property supports STR DSCR thresholds) or qualify using long-term market rent and convert post-closing.

What if my actual STR income is higher than projections?

Lenders use documented income for qualification. If you have operating history showing higher income than projections, submit the actual performance data instead.

Do seasonal properties qualify for STR DSCR?

Yes, but annual income must average to meet DSCR thresholds. A property earning $10,000/month for four months and $1,000/month for eight months averages $4,000/month ($48,000 annual ÷ 12).

Can I use STR income from a property I don’t own to qualify?

No. DSCR qualification is property-specific. Your experience managing other STR properties may influence reserve requirements or underwriting, but income must come from the subject property.

What happens if STR regulations change after closing?

The loan obligation remains regardless of local regulation changes. Investors should assess regulatory stability before purchasing. Most DSCR loans can be satisfied through property sale or refinance if conversion to long-term rental becomes necessary.

Partner with AHL for STR Financing

American Heritage Lending’s TPO division provides wholesale and correspondent partners with STR-eligible DSCR programs. Our experienced underwriting team understands vacation rental markets and provides common-sense evaluation of STR income documentation.

Questions about STR eligibility? Contact your Account Executive or call (855) 340-9892.

Not yet a partner? Apply at ahlendtpo.com and gain access to our full non-QM product suite including STR-eligible DSCR programs.