DSCR (Debt Service Coverage Ratio) loans are specialized, non-QM mortgages for short-term rentals (STRs) like Airbnb/VRBO, qualifying borrowers based on property income rather than personal income.
Traditional lenders rely on W-2s, tax returns, and pay stubs to approve a mortgage. That works for salaried homebuyers, but real estate investors often look like they barely break even on paper thanks to write-offs, depreciation, and business deductions.
A DSCR (Debt Service Coverage Ratio) loan solves that problem by qualifying you based on the income the property generates, not your personal earnings. This single difference opens doors that traditional lending keeps shut.
At Sprint Funding, we specialize in helping investors secure DSCR financing for short-term rentals and Airbnb properties. Whether you’re buying your first Airbnb or scaling a portfolio, contact us today for a free consultation.
What Is a DSCR Loan and How Does It Work?
A DSCR loan is a type of investment property financing where the lender evaluates the property’s rental income against its monthly debt obligations. The calculation is simple: take the property’s gross monthly rental income and divide it by the total monthly debt, which includes the mortgage payment, property taxes, insurance, and any HOA fees. The result is the DSCR ratio.
A ratio of 1.0 means the property’s income exactly covers its debt, and anything above 1.0 means it generates more than enough to pay for itself. Lenders each set their own minimum ratio requirements, and those thresholds tend to be slightly higher for short-term rentals to account for seasonal income variability.
Can You Use a DSCR Loan for an Airbnb or Short-Term Rental Property?
Yes, many lenders now offer DSCR loan programs that accept short-term rental income from platforms like Airbnb and VRBO as qualifying income. That said, they treat this income differently from long-term lease income.
Some accept a year or more of verified platform income history, while others require a longer track record. The documentation requirements vary from one lender to another, which is why your choice of lender matters as much as the property itself.
How Do Lenders Evaluate Short-Term Rental Income?
Lenders evaluate short-term rental income by reviewing either the property’s actual booking history or a projected income analysis based on comparable properties in the market.
Traditional approaches estimate income using long-term lease comparisons, which often undervalue short-term rental properties since nightly rates on platforms like Airbnb can produce more annual revenue than a standard long-term lease on the same unit, depending on the market and property type.
What Lenders Look at in STR Appraisals
Some lenders have adapted by using appraisals that incorporate short-term rental performance data. These typically factor in:
- Average daily rate (ADR): what the property earns per booked night
- Occupancy percentages: how consistently the property books throughout the year
- Seasonal revenue patterns: how income shifts between peak and off-peak months
What If the Property Has No Rental History?
If you’re purchasing a property with no booking history, lenders may rely on a projected income approach using comparable short-term rental data in the local market. The accuracy of that projection matters a great deal, and working with a lender experienced in short-term rental financing can make a real difference in your approval odds and loan terms.
Why Are DSCR Loans a Good Fit for Airbnb Investors?
Many short-term rental investors are self-employed, own businesses, or have income structures that don’t translate well onto a traditional loan application. DSCR loans sidestep that problem by focusing on one question: does this property produce enough income to cover its debt?
For Airbnb and VRBO operators, this unlocks financing that would be difficult or outright unavailable through conventional loan channels.
It also makes scaling easier. Each new property can be evaluated on its own merits through loan programs built for investors, rather than requiring the lender to review your entire financial profile every time.
What Do You Need to Qualify for a DSCR Loan on a Short-Term Rental?
Qualification requirements vary by lender, but most will review these areas when you apply for a DSCR loan on a short-term rental or Airbnb property.
Credit score: Lenders set their own minimums. A stronger credit profile will generally get you better rates and more favorable terms.- Down payment: DSCR loans on investment properties typically require a larger down payment than a primary residence. The exact percentage depends on the lender and the deal.
- Rental income documentation: You’ll likely need verified income history from your Airbnb or VRBO account. The length of history required varies by lender.
- Insurance: Standard homeowner’s policies generally do not cover short-term rental use. You’ll need a policy that covers guest stays, liability, and rental-related property damage.
- Reserves: Most lenders want to see several months of mortgage payments set aside in accessible assets.
When Is the Best Time to Apply for a DSCR Loan on a Rental Property?
Applying in late winter and early spring can position short-term rental investors well, especially in seasonal markets. Lenders look at booking data and trends in the surrounding area when calculating income potential, so if you apply ahead of peak season, whether that’s summer for beach towns, ski season for mountain properties, or spring for popular travel cities, the income figures may reflect those upcoming high-demand months. That can work in your favor when calculating the DSCR ratio.
Understanding the seasonal dynamics of your target market helps you anticipate how a lender might evaluate the property.
How Sprint Funding Helps Short-Term Rental and Airbnb Investors
At Sprint Funding, we work with investors financing Airbnb and short-term rental properties across a wide range of markets. Our team can help you estimate your DSCR ratio, find the right loan program for your strategy, and walk you through every stage from consultation to closing.
Ready to run the numbers on your next short-term rental investment? Call us today for a free consultation.
Frequently Asked Questions
What does DSCR stand for in real estate lending?
DSCR stands for Debt Service Coverage Ratio. It measures whether a property’s rental income is sufficient to cover its monthly debt obligations, including the mortgage, taxes, insurance, and any HOA fees.
Do DSCR loans require tax returns or proof of personal income?
No. DSCR loans are underwritten based on the property’s income, not the borrower’s personal earnings.
Can I get a DSCR loan if my Airbnb property has no rental history?
In many cases, yes. Some lenders accept projected income based on a short-term rental appraisal that uses comparable property data in the local market.
Are DSCR loans only for short-term rentals?
No. DSCR loans can be used for both long-term and short-term rental investment properties. However, the way income is evaluated differs depending on the rental type, and not all lenders accept short-term rental income.
What DSCR ratio do I need to qualify for a short-term rental loan?
A ratio of 1.0 means the property’s income exactly covers its debt. Most lenders prefer a ratio above 1.0, and some set higher minimums for short-term rentals to account for seasonal income variability.
Can I use a DSCR loan to buy multiple Airbnb properties?
Yes. Because each property is evaluated on its own income, DSCR loans allow investors to scale a portfolio without the lender reviewing their entire personal financial profile for every new purchase.
What type of insurance do I need for a DSCR-financed short-term rental?
Standard homeowner’s insurance policies generally do not cover short-term rental use. You will need a policy that specifically covers guest stays, liability, and rental-related property damage.
How is short-term rental income calculated differently from long-term rental income?
Long-term rental income is based on a fixed monthly lease amount. Short-term rental income is evaluated using factors like average daily rate, occupancy percentages, and seasonal revenue patterns, which can produce higher annual revenue but with more variability.
Can I get a DSCR loan if I am self-employed?
Yes. DSCR loans are a common option for self-employed investors because the qualification is based on the property’s rental income, not the borrower’s personal tax returns or employment status.
Does the location of my short-term rental affect DSCR loan approval?
It can. Lenders evaluate comparable short-term rental data in the local market when assessing income potential. Properties in high-demand travel markets with strong occupancy data may receive more favorable income projections than those in unproven locations.
