The rise of platforms like Airbnb, Vrbo, and Booking.com has created a massive opportunity for real estate investors: short-term rental properties. With higher nightly rates and dynamic pricing, these assets can often outperform traditional long-term rentals in terms of cash flow. But financing them isn’t always straightforward—especially for self-employed investors or those purchasing in non-traditional markets.
Enter DSCR loans—a powerful, cash-flow-based financing option that has become increasingly popular among short-term rental (STR) investors. In this guide, we’ll explore how DSCR loans work, their benefits, qualification criteria, and how to leverage them to build or scale your STR portfolio.
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A DSCR loan (Debt Service Coverage Ratio loan) is a type of investment property mortgage that uses rental income—not personal income—to qualify. This makes it ideal for investors who may not have strong W2 income or prefer to keep personal finances separate from business holdings.
DSCR = Net Operating Income (NOI) / Annual Debt Service
For example, if a short-term rental property generates $60,000 in NOI annually and the annual mortgage payments total $45,000:
DSCR = $60,000 ÷ $45,000 = 1.33
Most lenders require a minimum DSCR of 1.20 to 1.25 to approve a loan.
Traditional mortgage lenders typically don’t consider short-term rental income when evaluating eligibility. Instead, they rely on W2 income, tax returns, and DTI (debt-to-income) ratios. That doesn’t work well for investors using STR platforms or managing properties under an LLC.
DSCR loans solve this problem by focusing on the income potential of the property, giving investors much more flexibility.
| Loan Feature | Typical Range |
|---|---|
| Minimum DSCR | 1.20 – 1.25 |
| Maximum Loan-to-Value (LTV) | 70% – 80% |
| Credit Score | 660 – 700+ |
| Loan Amount | $100,000 – $5,000,000+ |
| Loan Term | 30-year fixed, 5/6 ARM, or interest-only options |
| Prepayment Penalty | Yes (typically 3–5 year step-down) |
| Ownership Type | Individual, LLC, LP, Corporation |
| Property Usage | Short-term rental income accepted |
Note: Some lenders may underwrite based on market rent (via a 1007 rent schedule) rather than actual Airbnb income—especially if the property is not currently operating.
DSCR lenders typically accept a variety of short-term rental configurations, such as:
It’s important that the property is in a STR-legal area and can produce reliable cash flow. Some lenders require 12 months of historical income; others accept projections based on local comps.
To get approved, investors need to demonstrate the property’s rental income potential and meet basic credit and reserve requirements.
Optional but helpful:
DSCR loans are ideal for STRs in markets with strong demand and year-round rental potential. Top-performing areas include:
Pro Tip: Use tools like AirDNA to analyze average daily rates (ADR), occupancy rates, and annual revenue projections before submitting your loan application.
Use a DSCR loan to finance an Airbnb-ready property in a top market—even if you don’t have tax-return-backed income.
Refinance from a hard money or high-interest loan to a long-term DSCR loan for better cash flow and equity access.
Leverage the equity from a high-performing STR to fund renovations, expansions, or new acquisitions.
Scale to multiple STR properties without the income limits of conventional lenders.
| Challenge | Solution |
|---|---|
| Market rent used instead of STR income | Provide income history or third-party STR performance reports |
| HOA or local STR restrictions | Confirm legality before applying; provide proof of compliance |
| Low DSCR due to seasonal fluctuations | Average annual income or add reserves to offset lender risk |
| Prepayment penalties | Choose lenders with flexible step-down options or plan to hold long-term |
As the short-term rental industry continues to grow, smart investors are looking for financing solutions that match the unique cash-flow profile of STRs. DSCR loans make this possible by focusing on what really matters: the property’s ability to generate income.
Whether you’re acquiring your first Airbnb, refinancing a cash-flowing STR, or scaling a portfolio across multiple markets, DSCR loans provide the flexibility, speed, and simplicity needed to grow confidently.
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Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
