Buying a short-term rental property is exciting. Financing one can be confusing. There are more loan options available to STR investors than ever before, and choosing the right one can save you tens of thousands of dollars over the life of your investment.
This guide walks through every major financing option for short-term rental properties, when to use each one, and how to set yourself up for the best terms.
Your financing options at a glance
There are four main ways to finance an STR property: DSCR loans (based on property cash flow), conventional investment property mortgages (based on personal income), second home loans (for properties you also use personally), and portfolio/bank statement loans (for self-employed investors). Each has trade-offs.
DSCR loans: the STR investor's workhorse
DSCR loans are purpose-built for real estate investors. They qualify you based on the property's rental income, not your personal income. No tax returns, no W-2s, no employment verification. If the property can pay for itself, you qualify.
This is the right choice when: you already own 4+ investment properties, you are self-employed with complex tax returns, you want to scale quickly without income constraints, or the property's STR income is significantly higher than its long-term rental value.
For a deep dive on DSCR loans, read our DSCR Loans 101 guide.
Conventional investment property loans
If this is your first or second investment property and your W-2 income is strong, a conventional loan may be a good fit. The trade-off is more paperwork (full income documentation) and limits (most lenders cap at 10 financed properties).
Conventional loans also have stricter DTI requirements. Your total monthly debt payments (including the new property) cannot exceed 43-45% of your gross monthly income. For high-income earners with few existing debts, this is not an issue. For investors carrying multiple mortgages, it becomes the bottleneck.
Second home loans: the hidden gem
If you plan to use the property personally for part of the year, a second home loan can offer the best of both worlds. Down payments can be as low as 10%, and you get the flexibility of personal use combined with rental income.
The catch: the property must be in a vacation or resort area at least 50 miles from your primary residence. You must intend to use it as a personal retreat, not solely as a rental. Most lenders allow rental activity as long as you occupy the home for at least 14 days per year or 10% of the days it is rented, whichever is greater.
This strategy works especially well for investors who genuinely want a vacation property that also generates income when they are not using it.
How lenders evaluate STR income
The biggest variable in STR financing is how the lender calculates the property's income. This single factor can make or break your loan qualification and determine your interest rate.
Conservative lenders use long-term rental comps, which dramatically undervalue STR properties. A cabin in the Smokies that generates $80K per year as an Airbnb might appraise for $30K in annual rent using long-term comps. That kills your DSCR.
STR-friendly lenders use actual Airbnb/VRBO income (for existing rentals) or projected STR income from data platforms like AirDNA (for new purchases). This reflects the property's true earning potential and typically results in much stronger DSCR ratios.
At STR Home Loans, we exclusively work with lenders who understand short-term rental income. We will never send your deal to a lender who undervalues your property by using long-term rental comps.
Down payment strategies
Most STR investors use one of these down payment approaches:
Cash savings: The straightforward approach. 20-25% down for DSCR or conventional investment loans. 10-15% for second home loans.
Home equity: If you have equity in your primary residence or other properties, a cash-out refinance or HELOC can fund your STR down payment. This is one of the most popular strategies for scaling from 1-2 properties to a portfolio.
1031 Exchange: If you are selling another investment property, a 1031 exchange allows you to defer capital gains taxes by rolling the proceeds into your STR purchase. The timeline is strict (45 days to identify, 180 days to close), but the tax savings can be substantial.
Getting started
The best time to start the financing conversation is before you start shopping for properties. A pre-qualification from an STR-focused lender tells you exactly what you can afford, what your rate and terms will look like, and how to structure the deal for the best outcome.
Contact our team to get pre-qualified. It takes about 15 minutes, and there is no obligation. We will help you figure out which loan product fits your situation and your STR investment goals.
