Airbnb Loans: Types and Requirements
If you’re interested in building a short-term rental property portfolio, you might be wondering how to finance it. Although there aren’t dedicated “Airbnb loans,” you can still purchase these properties using common mortgage programs, like conventional and government-backed loans. Below, we’ll cover financing options for homes you plan to rent out on Airbnb.
- Airbnb is a short-term rental platform that connects property hosts and guests.
- On average, hosts earn about $14,000 per year, according to Airbnb.
- Airbnb loans usually have stricter financial requirements than primary residence loans.
- Government-backed loan programs typically have an owner-occupancy requirement, though VA loans offer no-down-payment multifamily financing, which can help you buy an Airbnb property.
How do Airbnb loans work?
An Airbnb loan generally refers to an investment property loan. Unlike a traditional primary residence mortgage, these loans are designed to fund the purchase of a property you plan to use to generate income, usually by renting it out. In some cases, you can use a primary residence loan to buy an Airbnb if you plan on house hacking — meaning you live in the home while renting out a portion of it.
Keep in mind that investment property loans generally have more stringent minimum requirements than traditional loans. For example, the mortgage lender may require a higher credit score and a larger down payment.
Types of Airbnb financing
1. Conventional mortgage
A conventional loan isn’t part of a government-backed mortgage program. Instead, they’re offered by private lenders, like banks and credit unions. Many of these loans follow the guidelines set by Fannie Mae or Freddie Mac.
There are two ways you can use a conventional loan to buy an Airbnb: as an investment property loan, if you don’t plan to live in the home or as a primary residence loan, if you plan to live in the home while renting out the extra space.
Investment property loans generally require higher down payments, lower credit scores and cash reserves to cover vacancies and maintenance costs.
Conventional mortgage requirements
| Investment property | Primary residence | |
|---|---|---|
| Down payment | 15% to 25% | 3% |
| Minimum credit score | 640 | 620 |
| Cash reserves | Equal to one to six months of mortgage payments | None required |
2. Government-backed loan
Loans backed by the U.S. Department of Veterans Affairs (VA loans) and Federal Housing Administration (FHA loans) offer programs to finance a multifamily home that you can rent out on Airbnb.
A benefit of these government-backed multifamily loans is that you can buy Airbnb property with a lower down payment — in some cases, 0% down.
But if you want to use an FHA, VA or USDA loan for a rental, there are some major catches:
- You must live in one of the units for at least a year
- You can’t offer stays shorter than 30 days (FHA loans only)
- You must be a qualified military borrower (VA loans only)
Government-backed loan requirements
| FHA | VA | |
|---|---|---|
| Down payment | 3.5% to 10% | 0% |
| Credit score | 500 minimum with 3.5% down payment, 580 minimum with 10% down | No minimum, but most lenders require 620 or higher |
| Cash reserves |
| Six months’ worth of mortgage payments |
3. Cash-out refinance
With a cash-out refinance, you replace your current mortgage with a new one. The new mortgage is larger than your outstanding loan balance, giving you cash to put toward an investment property. The amount you’ll qualify to borrow largely depends on your home equity — use a cash-out refinance calculator to estimate your cash payout.
Cash-out refinance requirements
| Conventional | FHA | VA | |
|---|---|---|---|
| Loan-to-value (LTV) ratio | 80% | 80% | 90% to 100% |
| Credit score | 640 or higher | 500 | No minimum, many lenders require 620 or higher |
| Closing costs | 2% to 6% | 2% to 6% | 2% to 6% |
Think a cash-out refinance is right for you?
4. Home equity loan or home equity line of credit (HELOC)
You could also use a home equity loan or HELOC to buy an Airbnb. These are also known as a second mortgage, since your home is used as collateral and they don’t replace your primary mortgage. Instead, you’ll have an additional monthly payment.
With a home equity loan, you’ll receive a cash lump sum and repay it in fixed monthly installments. A HELOC works more like a credit card — you gain access to a revolving credit line you can pull from as needed and the credit line resets when you make payments.
Home equity loan requirements
- Loan limit: 85% of your home’s value
- Credit score: 620 or higher
- Closing costs: 2% to 5% of your loan amount
HELOC requirements
- Loan limit: 85% of the home’s value
- Credit score: 620 or higher
- Closing costs: 2% to 5% of your loan amount
- Fees: May be required to pay annual maintenance and membership fees
5. Hard money loan
Hard money loans are short-term loans issued by a private lender, backed by real estate and generally used for investment purposes. Using a hard money loan for Airbnb properties can grant you access to properties that traditional loans won’t finance, such as that treehouse in the woods that just begs to be listed on a rental site. In addition, approval can be faster — typically just a few days.
On the downside, interest rates and origination fees can be high. The repayment period is usually short, sometimes as little as one year. And since you’ll often only be required to pay interest during the loan term, you’re looking at a large balloon payment when the term ends. You’ll need a rock-solid plan for repayment before choosing this option.
Hard money loan requirements
- Loan limit: 65% to 75% of the property’s value
- Credit score: Many lenders don’t have a minimum requirement
- Fees: Origination fees are often high and prepayment penalties may apply
How to get a loan for an Airbnb
Start by making sure you meet the requirements for the type of loan you want. If your credit needs some work, you may want to focus on paying down debt or disputing any errors on your credit report before applying for an Airbnb loan. If you don’t have at least a 15% down payment for a conventional loan, you may need to continue saving or consider loans with lower down payments.
Once you’ve chosen the type of loan you want to apply for, the next step is to gather the necessary documents to send to the lender. This may include identification, proof of income and available rental history to demonstrate the property’s earning potential.
Don’t know your credit score? Get your free score on LendingTree Spring today.
Frequently asked questions
Yes, you can. Airbnb has no rules against renting space in a property with a mortgage on it. Local laws and homeowners association (HOA) bylaws may prohibit Airbnbs in certain cases, but that usually has no connection with whether the home still has a mortgage.
It depends on your goals and financial situation. Buying and renting out an Airbnb can be lucrative, but the income potential varies significantly by location. It’s important to understand the potential income you could earn, factoring in expenses, including property taxes, maintenance and property management.
One of the most common ways to buy an Airbnb property without making a down payment is by using a government-backed mortgage program. VA loans require 0% down, but they have important limitations to be aware of. For example, they’re only available to eligible military borrowers and require you to live in the home for a certain amount of time.
Some of the best financing options for an Airbnb property include conventional loans and government-backed mortgage programs. You’ll need to understand the financial requirements and occupancy rules of each option before making a decision.
You may be able to use up to 75% of qualifying projected rental income for the purposes of getting a conventional loan. VA loans and FHA loans don’t allow you to use short-term rental income to qualify for a loan.
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