Short term rentals have shifted from side hustle to serious investment class. With Airbnb hosts earning over $57 billion in 2023, more investors are buying properties specifically for nightly stays. The problem? Most banks still underwrite these deals using long term rent comps that ignore the actual cash flow. That is where a DSCR loan changes the picture.

Key Takeaways

• DSCR loans qualify you based on the property’s rental income, not your W2 or tax returns.
• Short term rental income from Airbnb and VRBO can count toward qualification when documented properly.
• Most lenders accept AirDNA projections, 12 month operator history, or long term market rent.
• Typical requirements: 660+ credit score, 20 to 25% down, and a DSCR of 1.0 or higher.
• REIF Loans offers DSCR financing for STR investors across Michigan and 43 other states.

Why Traditional Loans Fail Short Term Rental Investors

Conventional lenders look at your debt to income ratio, tax returns, and employment history. For self employed investors with multiple properties, those numbers rarely work in your favor. Write offs that reduce taxable income also reduce your borrowing power.

The bigger problem is how banks treat the income. Standard mortgages rely on Form 1007, which estimates long term rent for the area. An Airbnb in Traverse City might gross $80,000 a year, but the 1007 says $1,800 a month. That gap kills deals before they ever reach underwriting.

What Is a DSCR Loan?

DSCR stands for Debt Service Coverage Ratio. It is a non QM loan that qualifies you based on whether the property’s rental income covers the mortgage payment, taxes, insurance, and HOA dues. No paystubs. No tax returns.

The formula is straightforward:

DSCR = Gross Rental Income / PITIA

A DSCR of 1.0 means the property breaks even. A DSCR of 1.25 means the rent covers the payment with 25 percent to spare. Most lenders, including REIF Loans, want to see at least 1.0 for short term rental approvals.

How Lenders Evaluate Airbnb and VRBO Income

Not every lender treats short term rental income the same way. The method used has a real impact on whether your deal closes and at what loan amount.

Here are the three main approaches:

• 12 Month Trailing Income (T12): Actual gross income pulled from Airbnb or VRBO statements over the past year. This is the gold standard if the property has a track record.
• AirDNA or Rabbu Market Reports: Third party data showing projected nightly rates and occupancy for similar properties in the zip code. Useful for properties without operating history.
• Long Term Rent (Form 1007): A fallback method based on monthly rental comps. This usually hurts STR deals because it ignores the premium that nightly rates earn.

Some lenders also apply a haircut to gross STR income, often 70 to 80 percent, to account for cleaning fees, platform fees, and seasonal vacancy. Ask the lender upfront how they treat these adjustments. The answer changes your loan amount.

DSCR Calculation Example for a Short Term Rental

Say you are buying a cabin in Northern Michigan for $400,000. The numbers work like this:

• AirDNA projected gross income: $5,800 per month
• PITIA (principal, interest, taxes, insurance, HOA): $4,200 per month
• DSCR = 5,800 / 4,200 = 1.38

That property qualifies comfortably. Run the same deal using only Form 1007 long term rent of $2,200, and the DSCR drops to 0.52. The deal dies on a conventional loan but works on a DSCR product. This is exactly why investors switch.

DSCR Loan Requirements for Airbnb & STR Properties

Underwriting for STR DSCR loans is a bit stricter than standard rental property loans because of seasonality and local regulation risk. Most lenders look for the following:

• Credit score of 660 minimum, with best pricing at 720 and above
• Down payment of 20 to 25 percent for purchases, higher for condotels
• Cash reserves of 3 to 6 months of PITIA
• Property types: single family, 2 to 4 unit, condos, condotels
• Loan amounts from $100,000 up to $3 million plus
• Ability to close in an LLC for liability protection

Pros and Cons of Using a DSCR Loan for Your Airbnb

DSCR loans are a strong fit for STR investors but they are not free money. The trade offs are real, and you should weigh them before signing a term sheet.

Pros:

• No tax returns, W2s, or employment verification required
• Unlimited number of financed properties (no Fannie Mae 10 property cap)
• Close in your LLC name for asset protection
• Faster closings, often 21 to 30 days
• Actual STR income counted in qualification

Cons:

• Interest rates run 1 to 2 points higher than conventional
• Larger down payment requirement
• Prepayment penalties on most products (3 to 5 years)
• Local STR bans or HOA restrictions can disqualify properties

How to Get a DSCR Loan for an Airbnb with REIF Loans

The process at REIF Loans is built around investor timelines, not a one size fits all retail flow. Founded by Elizabeth Shvartsman, the team underwrites short term rental deals daily and knows the markets where STRs actually cash flow.

Here is how it works step by step:

1. Pre-qualify with a soft credit pull and basic property details.
2. Submit income documentation: Airbnb or VRBO statements, AirDNA report, or both.
3. Appraisal ordered with rent schedule and STR comps.
4. Underwriting runs the DSCR calculation and reviews local STR rules.
5. Final conditions and closing, typically within 30 days.

Get Pre-Qualified for Your Next STR

Short term rentals are a numbers game, and the right financing decides whether the deal works. REIF Loans helps Airbnb and VRBO investors close on properties that traditional banks will not touch, with lending available across Michigan and 43 states.

Ready to run the numbers on your next deal? Contact REIF Loans today for a free pre-qualification with no impact to your credit.

Frequently Asked Questions

Can I use projected Airbnb income to qualify?

Yes. AirDNA or Rabbu reports are accepted when the property is new to STR or you do not have 12 months of history.

What is the minimum DSCR for short term rentals?

Most lenders, including REIF Loans, require a 1.0 DSCR. Some products allow ratios as low as 0.75 with pricing adjustments.

Can I get a DSCR loan with no rental history at all?

Yes. First time STR investors qualify regularly using market projection reports.

Are DSCR rates higher for Airbnb versus long term rentals?

Slightly. Expect a 0.25 to 0.50 point premium because of seasonality risk.

Can I refinance an existing Airbnb with a DSCR loan?

Yes. Cash out refinances are one of the most common DSCR uses for STR investors building portfolios.