Using DSCR Loans to Finance Airbnb and Short-Term Rental Properties

How to finance Airbnb, VRBO, and vacation rental properties using DSCR loans. Learn which lenders accept STR income and how to qualify your short-term rental.

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Using DSCR Loans to Finance Airbnb and Short-Term Rental Properties

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Short-term rentals have become one of the most profitable strategies in real estate investing. Properties listed on Airbnb, VRBO, and similar platforms can generate two to three times the income of a comparable long-term rental in the right market. But financing these properties has historically been a challenge — traditional lenders often refuse to count short-term rental income, and conventional mortgages require personal income documentation that many investors prefer to avoid.

That is where DSCR loans come in. A Debt Service Coverage Ratio loan qualifies the property based on its rental income rather than the borrower’s personal W-2 or tax returns. For short-term rental investors, a DSCR loan can be the fastest and most flexible path to financing — but only if you understand how lenders evaluate STR income differently from traditional rental income.

This guide covers everything you need to know about using DSCR loans to finance Airbnb and short-term rental properties, including how lenders calculate STR income, which markets work best, and how to position your deal for approval.

How STR DSCR Loans Differ from Traditional DSCR Loans

A standard DSCR Loan Financing is straightforward: the lender looks at the property’s market rent (typically from a 1007 rent schedule on the appraisal) and divides it by the total monthly payment including principal, interest, taxes, insurance, and any HOA fees. If that ratio meets or exceeds the lender’s minimum — usually 1.0 to 1.25 — the loan qualifies.

Run your numbers through our DSCR Loan Calculator — Canadian Edition to see if your property qualifies.

Short-term rental DSCR loans follow the same basic structure, but the income side of the equation is more complex. Instead of a single predictable monthly rent, STR income fluctuates based on occupancy rates, nightly rates, seasonal demand, and platform fees. This introduces uncertainty that lenders must account for.

Key differences include:

Income documentation: Lenders may require AirDNA projections, actual booking history, or a combination of both rather than a simple rent comp
Higher DSCR minimums: Some lenders require a 1.25 DSCR for short-term rentals versus 1.0 for long-term rentals
Larger down payments: Expect 25% to 30% down for STR properties compared to 20% to 25% for long-term rentals
Rate premiums: STR DSCR loans often carry a rate adjustment of 0.25% to 0.75% above standard DSCR pricing
Fewer lender options: Not all DSCR lenders accept short-term rental income, narrowing your choices

Understanding these differences upfront helps you set realistic expectations and choose the right lender for your deal.

How Lenders Calculate Short-Term Rental Income

This is the most important piece of the STR DSCR puzzle. Lenders use several methods to determine the income your short-term rental will generate, and different lenders prefer different approaches.

Method 1: AirDNA Projections

AirDNA is a third-party data platform that provides revenue estimates for short-term rental properties based on comparable listings in the area. Many DSCR lenders accept AirDNA’s STR analysis report (called a Rentalizer report) as the primary income source.

The AirDNA report estimates annual revenue based on average daily rate, occupancy rate, and seasonality patterns for comparable properties within a defined radius. Lenders typically use the annual projection divided by 12 to arrive at a monthly income figure.

Some lenders apply a haircut to the AirDNA number — using 75% or 80% of the projected income rather than the full estimate. This accounts for the fact that projections are optimistic by nature and new operators may not immediately achieve market-average performance.

Method 2: Actual Booking History

If the property is already operating as a short-term rental, lenders may accept 12 to 24 months of actual booking history from Airbnb, VRBO, or your property management software. This is the strongest form of income documentation because it reflects real performance rather than projections.

Lenders will look at gross booking revenue, subtract platform fees (typically 3% to 15%), and use the net figure as income. Some lenders average the trailing 12 months while others weight recent months more heavily.

Method 3: 1007 Rent Schedule with STR Adjustment

A few lenders still use the traditional 1007 rent schedule from the appraisal but allow the appraiser to include short-term rental comparables. This approach works in markets where STR data is readily available and appraisers are experienced with vacation rental valuations.

Method 4: Hybrid Approach

The most common approach among experienced STR lenders is a hybrid: they accept AirDNA projections as a starting point but may also request actual booking history if available, and they cross-reference against the 1007 rent schedule to ensure the numbers are reasonable.

Pro tip: Before applying, ask your lender exactly which income documentation method they accept. Providing the wrong type wastes time and can delay your closing.

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Best Markets for STR DSCR Loans

Not every market is well-suited for short-term rental DSCR financing. The best markets share a few key characteristics:

Strong Tourism Demand

Markets with consistent visitor traffic provide the occupancy rates needed to meet DSCR requirements. Florida Gulf Coast cities like Destin, Panama City Beach, and Fort Myers consistently show strong STR performance. Mountain destinations like Gatlinburg, Tennessee, and Big Bear, California, also perform well year-round.

Favorable STR Regulations

Lenders are increasingly cautious about regulatory risk. Markets where short-term rentals are clearly legal, properly zoned, and supported by local government are easier to finance. States like Florida, Tennessee, Texas, and Arizona generally have investor-friendly STR environments.

Markets with restrictive or changing STR regulations — such as parts of New York City, Los Angeles, and Nashville — may cause lenders to decline the deal or require additional conditions.

Proven Revenue Data

Lenders want to see robust comparable data. Markets with hundreds or thousands of active short-term rental listings provide the data density needed for accurate income projections. Rural or emerging markets with limited STR history can be harder to finance.

Year-Round vs. Seasonal Markets

Seasonal markets like beach towns or ski resorts can work, but lenders will use annualized income rather than peak-season numbers. A property that generates $8,000 per month in summer and $2,000 per month in winter will be evaluated on the full-year average, not the high season alone.

Furnished Property Valuation Challenges

Short-term rental properties are typically furnished, which creates a unique challenge during the appraisal process. Standard residential appraisals value the real property — the structure and land — but not the furniture, fixtures, and equipment (FF&E) inside.

This matters because many STR investors spend $15,000 to $40,000 furnishing a property to Airbnb standards. That investment improves income but does not directly increase the appraised value.

Some strategies to navigate this:

Separate the FF&E: Keep furniture purchase receipts separate from your renovation budget. Lenders will not include FF&E in the loan amount, but documenting it separately shows professionalism.
Focus on structural improvements: Renovations that increase appraised value (kitchens, bathrooms, additions) are more valuable for financing than furniture upgrades.
Request an appraiser experienced with STR: An appraiser who understands vacation rental markets may select better comparables that reflect the property’s true market value.

Seasonality and How It Affects Your DSCR

Seasonality is one of the biggest factors that separates short-term rental DSCR analysis from long-term rental analysis. A long-term rental generates consistent monthly income. A short-term rental may generate 60% to 70% of its annual revenue during a four-month peak season.

Lenders handle seasonality in different ways:

Annual average method: Total projected annual income divided by 12. This is the most common approach and smooths out seasonal fluctuations.
Low-season stress test: Some lenders calculate the DSCR using only off-season income to ensure the property can cover its debt even during slow months. This is a tougher test but provides a margin of safety.
Trailing 12-month actual: For properties with operating history, lenders may simply average the last 12 months of actual income, which naturally accounts for seasonality.

To strengthen your application in a seasonal market, consider demonstrating that the property generates enough revenue during peak season to cover the full annual debt service, and that off-season income provides additional cushion.

Insurance Requirements for Short-Term Rentals

Standard homeowners insurance does not cover short-term rental activity. Lenders financing STR properties will require specialized insurance, and this is a non-negotiable condition of closing.

You will need either:

Commercial short-term rental insurance: Policies from carriers like Proper Insurance, CBIZ, or Safely that specifically cover properties rented on a nightly or weekly basis
Landlord policy with STR endorsement: Some traditional landlord policies offer a short-term rental rider, though coverage may be more limited

Expect to pay $2,500 to $5,000 annually for STR insurance on a typical property, compared to $1,200 to $2,000 for standard landlord insurance. This higher cost directly impacts your DSCR calculation because insurance is included in the monthly payment used to calculate the ratio.

Make sure your insurance is in place before closing. Lenders will require proof of coverage, and a gap in insurance can delay or kill the deal.

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STR Regulations and Lender Risk

Short-term rental regulations are evolving rapidly across the United States. Cities and counties are implementing permit requirements, occupancy limits, zoning restrictions, and outright bans in some areas. This regulatory environment creates risk for lenders, and they are increasingly aware of it.

When you apply for an STR DSCR loan, expect lenders to evaluate:

Local STR permit requirements: Does the property have (or can it obtain) the required short-term rental permit or license?
Zoning compliance: Is the property in a zone where STR activity is permitted?
HOA restrictions: If the property is in an HOA community, do the bylaws allow short-term rentals?
Regulatory trend: Is the local government tightening STR rules? Lenders may be cautious in markets where bans or major restrictions are being discussed.

Some lenders will not finance STR properties in jurisdictions with unstable or hostile regulatory environments, regardless of the property’s income potential. Before making an offer on an STR property, research the local regulatory landscape thoroughly and be prepared to provide permit documentation to your lender.

Comparing STR vs. LTR DSCR Qualification

Understanding how short-term rental and long-term rental DSCR qualification compare helps you decide which strategy — and which financing approach — makes the most sense for a given property.

Factor	Long-Term Rental DSCR	Short-Term Rental DSCR
Income source	1007 rent schedule / lease	AirDNA, booking history, or hybrid
Typical minimum DSCR	1.0 – 1.10	1.0 – 1.25
Down payment	20% – 25%	25% – 30%
Rate premium	Base DSCR rate	+0.25% to 0.75%
Insurance cost	$1,200 – $2,000/yr	$2,500 – $5,000/yr
Lender availability	Most DSCR lenders	Select DSCR lenders
Income predictability	High	Moderate to low
Potential income	Market rent	1.5x – 3x market rent

The trade-off is clear: short-term rentals offer significantly higher income potential but come with more financing friction, higher costs, and greater income variability. For investors who understand their market and can execute well, the higher income usually more than compensates for the additional hurdles.

For a deeper look at DSCR loan qualification criteria, see our guide on DSCR loan requirements.

Pros and Cons of STR DSCR Loans

Advantages

No personal income verification: Like all DSCR loans, STR DSCR loans qualify based on property income rather than your personal tax returns or W-2s
Higher qualifying income: STR income often exceeds long-term rental income, which can push the DSCR ratio above lender minimums more easily
Close in an LLC: Most DSCR lenders allow you to close in your business entity, providing liability protection critical for STR properties with guest exposure
Scale without DTI limits: Because DSCR loans do not count against your personal debt-to-income ratio, you can acquire multiple STR properties without hitting conventional loan limits
Fast closing: Many DSCR lenders can close STR loans in 21 to 30 days

Disadvantages

Higher rates: STR DSCR loans typically carry rates 0.25% to 0.75% higher than standard DSCR loans and 1% to 2% higher than conventional investment property rates
Larger down payment: Most lenders require 25% to 30% down, tying up more capital per deal
Fewer lender options: Not all DSCR lenders accept STR income, limiting your choices and negotiating leverage
Prepayment penalties: Most DSCR loans include prepayment penalties (typically 3-2-1 or 5-4-3-2-1 structures) that limit your flexibility to refinance or sell early
Regulatory risk: If local STR regulations change after closing, your income assumptions may no longer hold

To understand how current rates compare across different DSCR loan programs, review our DSCR loan rates guide.

How to Position Your STR Deal for Approval

Preparation is what separates deals that close smoothly from deals that stall in underwriting. Here is how to position your short-term rental DSCR loan for the best outcome:

Get your AirDNA report early. Order the Rentalizer report before making an offer so you know whether the numbers work at your target purchase price.
Obtain the STR permit. If your target market requires a permit, start the application process immediately. Some lenders require the permit to be in hand before closing.
Line up STR insurance. Get quotes from specialized STR insurers before you apply for the loan. Know your annual premium so you can accurately calculate the DSCR.
Choose the right lender. Work with a lender or broker who specializes in STR DSCR loans and has closed deals in your target market. Generic DSCR lenders may not understand STR nuances.
Prepare a property business plan. While not always required, a brief business plan showing your pricing strategy, target occupancy, and management approach can strengthen your application.
Budget for furnishing separately. Keep your furnishing budget out of the loan amount. Plan to fund FF&E from cash reserves or a separate credit line.

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Frequently Asked Questions

Can I use Airbnb income to qualify for a DSCR loan?

Yes. Many DSCR lenders accept Airbnb income for qualification purposes. Depending on the lender, they may use AirDNA projected income, your actual Airbnb booking history from the past 12 to 24 months, or a combination of both. Not all DSCR lenders accept short-term rental income, so confirm this with your lender before applying.

What DSCR ratio do I need for a short-term rental?

Most lenders require a minimum DSCR of 1.0 to 1.25 for short-term rental properties. A 1.0 DSCR means the property's income exactly covers the debt payment, while 1.25 means income exceeds the payment by 25%. Some lenders accept a 1.0 DSCR for STR properties but may charge a higher rate or require a larger down payment.

What is an AirDNA report and why do lenders require it?

An AirDNA Rentalizer report is a third-party analysis that projects short-term rental revenue for a specific property based on comparable listings in the area. Lenders use it as an independent income estimate when the property does not have existing booking history. The report includes projected average daily rate, occupancy rate, and annual revenue. It typically costs around $20 to $40 per report.

Do I need a short-term rental permit to get a DSCR loan?

It depends on the lender and the jurisdiction. If your target market requires an STR permit, most lenders will require proof that the permit has been obtained or is obtainable before closing. Some lenders require the actual permit in hand at closing, while others accept proof that the application is in process. Always check local regulations and discuss permit requirements with your lender early in the process.

How much more expensive is an STR DSCR loan compared to a standard DSCR loan?

Short-term rental DSCR loans typically carry interest rates 0.25% to 0.75% higher than standard DSCR loans for long-term rentals. You will also likely need a larger down payment (25% to 30% vs. 20% to 25%) and will pay more for insurance ($2,500 to $5,000 annually vs. $1,200 to $2,000). The higher income from STR properties usually offsets these additional costs.

Can I close an STR DSCR loan in my LLC?

Yes. Most DSCR lenders allow you to close in an LLC, which is particularly important for short-term rental properties. STR properties carry additional liability exposure from guest injuries, property damage, and other hospitality-related risks. Closing in an LLC provides a layer of asset protection that separates your personal assets from the investment property.

What happens to my DSCR loan if the city bans short-term rentals?

Your loan obligation remains regardless of regulatory changes. If a local government restricts or bans short-term rentals after you close, you would need to convert the property to a long-term rental or find another use. The DSCR loan itself does not require you to operate as an STR — it simply used STR income for qualification. However, the property still needs to generate enough income to cover the mortgage payment, so a forced conversion to long-term rental could create cash flow challenges if the LTR income is significantly lower.

Is it harder to get a DSCR loan for a seasonal rental property?

It can be. Lenders evaluate seasonal properties using annualized income, so your peak-season revenue must be strong enough to produce a favorable DSCR when averaged across 12 months. Some lenders also apply a low-season stress test to ensure the property can service debt during slow periods. The key is demonstrating that total annual revenue comfortably exceeds total annual debt service, even if monthly income fluctuates significantly throughout the year.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

February 15, 2026

Reading Time

12 min read

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