By Matt Allen
Vice President, Portfolio Lending (NMLS #415037);

How to Purchase an Airbnb with an Investment Property Loan

Sep 09, 2022

  • DSCR Loans
  • Investment Property Loans
  • Home Loans

As current travel conditions challenge vacationers, alternative accommodations are becoming more desirable. One of the most popular lodging options in recent years is Airbnb. Founded in 2007 by San Francisco residents Joe Gebbia, Brian Chesky, and Nathan Blecharzk to help pay their rent, Airbnb is an online marketplace connecting travelers with people who want to rent their homes. The pricing is often cheaper and can offer more character and options than hotels. Since its launch in 2007, Airbnb has gone from one rental to 5.6 million active listings and 4 million hosts, serving over 150 million users.  So, it’s no wonder there is an increase in the number of property purchases for the sole purpose of renting it out as an Airbnb. How difficult is it to get a business loan for an Airbnb?

One option for getting an Airbnb mortgage is an Investment Property Loan. These loans look at the borrower's employment history, credit score, and debt-to-income ratio to determine eligibility for the purchase of a property that will be used for income, not as a residence.

The main qualifying factors for securing an investment property loan are:

  • Employment history: You must show proof of verified employment for a minimum of two years.
  • Credit score: Your credit score will determine your down payment, rate, and ability to be approved. Most lenders require a minimum credit score of 620 to qualify, and a credit score of 720 or higher will get you the best rates.
  • Debt to Income ratio (DTI): Your DTI is determined by dividing your gross monthly income by your total monthly debts. A DTI of 36% or less is ideal; anything above 50% may prevent you from qualifying.
  • Down payment: You should be prepared to put down 20%-25% of the purchase price for an investment property loan.
  • Lender approval of property type: Must meet lender’s property type eligibility and minimum square footage requirements.

Another option for purchasing a property for use as an Airbnb is a Debt Service Coverage Ratio (DSCR) loan. A DSCR loan looks at the cash flow generated from purchased property to qualify instead of personal income. The DSCR is calculated by simply dividing the net operating income of the investment property by its debt obligations. A DSCR of 1.2 is typically considered a good ratio for a residential investment property. Other requirements include a 20% minimum down payment and lender approval of property type, and minimum square footage requirements.

While there is the potential for a high ROI on purchasing a home for an Airbnb, there are some things you should consider before investing:

  • Are you located in a high-traveled area? Being in a place where there is demand for accommodations is essential to ensure consistent scheduling.
  • Living near the property is essential. If something goes wrong, you need to be there to fix it.  And you’ll want to watch over and inspect your property for damage or repairs required.
  • Make sure of the rules and regulations in your area. Some states and regions don’t allow you to list as an Airbnb rental, and you may need special permits and licenses.
  • Find a realtor and lender with investment property experience. They will know what you’re looking for and how to achieve your goals.

If you are looking at purchasing an Airbnb property, talk to the experts at NASB at 816-465-0753.