How To Get A DSCR Loan For Airbnb (2025)

Owning an Airbnb can be a great way to earn a passive income. The downside of it, however, is that short-term rental financing isn’t always easy. Traditional mortgage lenders often hesitate to approve Airbnb properties since the rental income is considered unpredictable. 

If you’ve found yourself in a similar situation and if you see owning an AirBnB as your next investment property, a DSCR loan for AirBnB may be the solution you’ve been looking for. 

By the end of this guide, you’ll know whether a DSCR loan is the right fit for you and how to prepare for approval.

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Key Takeaways

Lenders require a DSCR ratio of 1.25–1.30+, which means the property must generate at least 25–30% more income than its mortgage payments.

Interest rates range from 8% to 12% (2024), with better rates for those with higher DSCR ratios, lower LTVs, and strong credit scores (680+).

Lenders evaluate Airbnb and other short-term rental properties based on location, occupancy rates, and rental history. Properties in high-demand markets are more likely to qualify.

New Airbnbs can qualify using projected income, but some lenders require 12+ months of rental history like monthly payment for approval.

Hidden costs like origination fees (1–3%) and prepayment penalties apply. Always compare lenders to avoid unexpected expenses.

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What is a DSCR Loan? (And Why It’s Perfect for Airbnb)

A Debt Service Coverage Ratio loan is a real estate loan that allows investors to qualify based on a property’s rental income instead of their personal income. 

If you’re new to DSCR loans or want a deeper understanding of how they work and why lenders use them, read our complete guide on DSCR loans here.

1. Traditional Loans Don’t Work for Airbnb Investors

Most Airbnb hosts struggle to qualify for conventional loans because banks prefer borrowers with predictable incomes. Traditional mortgage lenders evaluate a borrower’s employment history, debts on their multiple properties and personal income and tend to favor long-term rental properties over short-term vacation rentals. 

This is because Airbnb income is seen as seasonal and inconsistent, it comes under short-term rental market with high revenue in peak months and slower bookings in the off-season. This variable cash flow makes it harder for Airbnb investors and other short term rental properties investors to meet standard loan requirements.

Another major hurdle is debt-to-income (DTI) ratio limits. Traditional loan lenders consider personal debt (including credit card debt, car loans, borrower's personal income etc.), making it challenging to qualify for a loan. DSCR loans and DSCR mortgages, however, remove this obstacle.

One of the biggest advantages of expanding your real estate investment portfolio through an Airbnb property is the ability to reduce taxable income through deductions and depreciation. 

Under IRS guidelines, Airbnb hosts can deduct expenses related to running their rental property, including:

• Mortgage interest payments

• Property depreciation (a major tax benefit for real estate investors)

• Cleaning, maintenance, and repair costs

• Utilities, insurance, and property management fees

Depreciation helps Airbnb investors lower their taxable income by accounting for property wear and tear, even if they earn substantial rental revenue. 

Since DSCR loans focus on property cash flow instead of tax returns and debt obligations, investors can still qualify even if deductions reduce their reported income. This makes DSCR loans an excellent option for scaling an AirBnB investment portfolio while maximizing tax benefits.

DSCR Loan Requirements for AirBnB Properties

While DSCR loans offer much more flexibility than traditional loans with strict lending criteria, lenders still require real estate investors to meet specific criteria.

Minimum DSCR Ratio: 1.25–1.30+ for Most Lenders

The DSCR (Debt Service Coverage Ratio) is the most important factor lenders consider when approving a DSCR loan. It helps determine whether your Airbnb generates enough rental income (showing enough cash flow potential) to cover its mortgage payment.

Most lenders require a minimum DSCR of 1.25–1.30, meaning your property must earn at least 25–30% more than the total debt payments. 

However, a higher DSCR (e.g. 1.50+) can help you secure lower interest rates.

You can manually calculate your Debt Service Coverage Ratio before applying to see if you meet lender requirements using this formula:

Credit Score Requirements: 620 vs. 680+ for Better Rates

Even though DSCR loan programs don’t require personal income verification in their loan application, your credit score still plays an important role in determining loan approval and interest rates. This is because credit scores assess financial responsibility.

• Minimum credit score, 620: Some lenders will approve borrowers with a minimum credit score of 620 but at a higher interest rate.

• Best rates, 680+: Investors with a credit score above 680 can secure lower rates and better loan terms.

Property Criteria: Location, Occupancy Rates, and Rental History

Since Airbnb properties have fluctuating occupancy rates in the real estate investing market, lenders assess factors specific to your property. 

1. Urban vs. Vacation Hotspots

Lenders prefer high-demand AirBnB locations where occupancy rates are stable and income on the rental property is consistent year-round. Seasoned real estate investors are aware about this fact.

Best locations for DSCR loan approval:

• Urban areas 

• Popular tourist destinations 

• Near major events and attractions 

Riskier locations that may face higher lender scrutiny:

• Seasonal-only vacation rentals

• Small towns with limited tourism demand

2. Occupancy Rates and Rental Demand

When approving a DSCR loan, lenders will evaluate Airbnb market trends and occupancy rates to determine whether your rental can maintain a steady cash flow. 

If your Airbnb is located in an area with high occupancy rates in the past, your AirBnB financing will likely be approved. 

3. Rental History

A strong 12-month Airbnb rental history significantly improves loan approval odds. Lenders prefer to see:

• Consistent rental income over the past year

• A stable or increasing occupancy rate

• Evidence of repeat guests and positive reviews

If a new Airbnb property has no rental history, some lenders may accept a projected rental income based on comparable properties in the area. 

Step-by-Step Guide to Getting a DSCR Loan for Airbnb

While meeting lender requirements is a major hurdle to overcome, a strategic approach is also needed to improve your chances of approval and secure better loan terms. 

Here’s how you can improve your chances of loan approval: 

Step 1: Airbnb Cash Flow Analysis

DSCR loans are based on rental income alone, so lenders want to ensure that your Airbnb generates enough revenue to cover your mortgage debt payments. 

The best way to do this is to calculate your DSCR (Debt Service Coverage Ratio) well in advance and prepare a detailed income projection. 

Here’s a template you can use for Airbnb cash flow analysis:

Step 2: Compare DSCR Lenders

Not all lenders offer the same interest rates, loan-to-value (LTV) ratios and terms for DSCR loans. That’s why it’s best to get quotes from multiple lenders. Doing this can save you thousands in interest over time. 

Here’s a side-by-side comparison of different DSCR lenders: 

Step 3: Prepare Your Documentation

While DSCR loans don’t require W-2s or personal tax returns, lenders still require proof your Airbnb can cover the mortgage. 

Here’s a list of documents you need to get ready to speed up the approval: 

• 12-month Airbnb rental history (or projected rental income if newly purchased)

• Profit & Loss (P&L) statement showing revenue vs. expenses

• Bank statements (3–6 months) showing rental deposits

• Property tax statements and insurance policy details

• Lease agreements (if applicable)

• Airbnb market reports to verify occupancy rates

Step 4: Avoid Common Pitfalls That Could Delay Approval

Most investors with huge business incomes unknowingly make avoidable mistakes that lead to loan rejections or higher loan costs. 

Here’s what to steer clear of: 

• Underestimating Expenses: When analyzing Airbnb's cash flow, lenders factor in cleaning fees, property management, maintenance, and taxes.

• Overestimating Occupancy Rates: Lenders use conservative rental projections for property's income potential, so claiming unrealistic occupancy rates can hurt credibility.

DSCR Loan Rates, Terms, and Costs

When applying for a DSCR loan, it’s essential to understand the costs and terms. Unlike traditional mortgages, DSCR loans have different interest rates, loan-to-value (LTV) ratios, and fees, which can significantly impact profitability. 

Current DSCR Loan Interest Rates 

As of 22nd Jan 2025, DSCR loan interest rates typically range between 6.5–8.5%. This depended on factors such as:

• Your DSCR ratio (higher ratios = better rates)

• Credit score (680+ qualifies for lower rates)

• Property location and market demand

• Loan-to-value (LTV) ratio (higher LTV = higher rates)

  Compared to traditional mortgages (which range from 6–8%), DSCR loans have higher interest rates because they are considered higher risk for lenders.

Loan-to-Value (LTV) Ratios for DSCR Loans

LTV ratios determine how much of a property’s value a lender is willing to finance (maximum loan amount). 

Hidden Fees to Watch Out For

DSCR loans often come with additional fees that can increase borrowing costs. Before you sign an agreement in their loan application, make sure you’re aware of the following: 

1. Origination Fees

• 1–3% of the total loan amount

• Covers the lender’s processing and underwriting costs

2. Prepayment Penalties

• Charged if you pay off the loan early (common in the first 3–5 years)

• Some lenders offer prepayment penalty-free options for slightly higher interest rates

3. Other Fees

• Appraisal fees ($500–$1,000)

• Closing costs (2–5% of the loan amount)

• Servicing fees (annual or monthly, depending on the lender)

DSCR vs. Traditional Mortgage vs. Hard Money Loan

To help you decide whether a DSCR loan is the right fit, here’s a comparison of DSCR loans, traditional mortgages, and hard money loans:

Pros and Cons of DSCR Loans for Airbnb Hosts

DSCR loans offer flexible short-term rental financing; however, as with all loans, they have advantages and disadvantages. 

Pros of DSCR Loans

Cons of DSCR Loans

For a more in-depth breakdown of DSCR loan benefits and drawbacks, read our full guide on the Pros and Cons of DSCR Loans.

When to Consider Alternatives Instead of a DSCR Loan

We’ve put together a quick guide to help you decide when to consider these alternatives: 

Note: Each financing option has its own set of requirements, benefits, and risks. It's essential to assess your financial situation and investment goals before deciding.

Alternatives to DSCR Loans (When to Consider Them)

While DSCR loans are a great option for Airbnb investors, they may not always be the right fit for everyone. If you’re looking for alternative short-term rental financing as a real estate investor, here are some other loan options:

1. Home Equity Loans & HELOCs 

If you already own a home or another investment property with built-up equity, a Home Equity Loan or Home Equity Line of Credit (HELOC) is a good loan option.

• A Home Equity Loan allows you to borrow a lump sum based on the equity in your property, usually at a fixed interest rate.

• A HELOC functions like a credit card, giving you access to a revolving credit line that you can draw from as needed.

2. BRRRR Strategy

The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy allows you to build a rental portfolio with minimal upfront capital. 

1. Buy a distressed or undervalued property.

2. Rehab the property to increase its value.

3. Rent it out to generate rental income.

4. Refinance with a cash-out refinance loan based on the new market value.

5. Repeat by using the cash-out funds to purchase the next property.

3. Real Estate Crowdfunding 

Real estate crowdfunding allows investors to pool money with others to purchase rental properties. 

• Investors buy shares in an Airbnb rental through a crowdfunding platform.

• The platform manages the property, collects revenue, and distributes returns to investors.

• Investors earn passive income without needing to qualify for a mortgage.

4. Partnering With a Property Management Company

Another option is partnering with a property management company that co-invests and helps with financing in exchange for a share of rental income.

• The investor and property management company purchase an Airbnb property together.

• The management company handles guest bookings, maintenance, and operations.

• Profits are split based on the agreed-upon terms.

FAQs About DSCR Loans for Airbnb

Can I use projected Airbnb income to qualify?

While some lenders may accept projected Airbnb income, policies may vary. If your Airbnb has 12+ months of rental history, lenders rely on actual data. For new Airbnbs, some lenders accept market rent estimates from platforms such as Zillow. 

What if my Airbnb is new with no rental history?

You can still qualify, but the lender will decide whether to approve you. Some lenders use market rent comparisons, while others require a signed lease or proof of future Airbnb bookings.

Do DSCR loans require a personal guarantee?

Most DSCR loans require a personal guarantee. This means you’re personally liable if the loan defaults. Some lenders offer non-recourse DSCR loans, where only the property can be seized, but these typically require a higher DSCR ratio and lower LTV.

Conclusion

DSCR loans typically make it easier to finance an Airbnb by qualifying based on rental income. If you're ready to get started, book a free consultation with our DSCR loan specialists at Truss Financial Group today.