What are some good STR loans out there today?

Riverside, California
Short-Term & Vacation Rental Discussions
2yFollow

What are some good STR loans out there today?

Juan Zamora
Riverside CA · Member since 2019 · 11 posts · 6 votes

Hi everyone, I'm looking to jump into the STR game since the market has been crazy. I feel the time is good since theirs fear and people are hesitant because of rates not dropping, thus giving me a opportunity to make this move.

I have a few locations in mind I've been doing my research for STR and running possible numbers but now I need to know what loans are out there? What's the best option with low DP then the traditional 20%..

lastly of you have a awesome lender who is creative and can make it happen, please share contact Info. 

thanks 

5Reply
55 views

Most Popular Reply

Jonathan Taylor
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
2y

@Juan Zamora 10% down loans for striclty investment properties (no owner occupancy allowed) are not a reality any more. If you are buying a second home and qualifying conventionally, then a second home purchase can be done with 10% down. But more investors buying STRs are putting 20% down using STR specific DSCR loans assuming the rents can debt cover. These loans can have an interest only period of up to 10 years and the DSC ratio is calculated using the interest payment not the P and I. These loans are what is working in this high rate, low Long term rent environment.

3Reply
See this reply in the discussion

18 Replies

Jump to latestLatest
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    2y

    My understanding is the 10% down loans have tightened up and are much more difficult to get.

    Start with banks you already do business with and local credit unions.

    I have used Associated Credit Union and Rocket mortgage.

    2Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    In FL I have a lender who gets the 10% second home loans done easily.  She also has a portfolio loan at 15% down.  You will not get lower than those options unless you claim it to be a primary residence which would not be ... legal.

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
    WebsiteView Page
    2Reply
  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    2y

    @Juan Zamora 10% down loans for striclty investment properties (no owner occupancy allowed) are not a reality any more. If you are buying a second home and qualifying conventionally, then a second home purchase can be done with 10% down. But more investors buying STRs are putting 20% down using STR specific DSCR loans assuming the rents can debt cover. These loans can have an interest only period of up to 10 years and the DSC ratio is calculated using the interest payment not the P and I. These loans are what is working in this high rate, low Long term rent environment.

    3Reply
  • Ryan PorterPro Member
    Real Estate Broker · Jackson Ms · Member since 2019 · 35 posts · 26 votes
    2y

    I have found lately that banks want 20% down on an Airbnb if it is turn-key. If the unit is income producing for 2 years, you can use that income on your DTI. If you are unable to do that, you can still Brrr an Airbnb as long as your income will carry the DTI needed to secure the loan. The downside of an Airbnb Brrr, from what I have seen, is that you cannot use the income from the property on your DTI. This limits the volume of what you can do versus a year contract rental. Not to mention the $5,000 - $8,000 to furnish them. Once you set them up as a business, and after two years of steady income, the bank will use that income on your DTI. It is a slow growth in AirBnb world for us poor folk!

    [email protected]601-238-6620
    1Reply
  • Juan Zamora
    OP
    Riverside CA · Member since 2019 · 11 posts · 6 votes
    2y
    Quote from @Jonathan Taylor:

    @Juan Zamora 10% down loans for striclty investment properties (no owner occupancy allowed) are not a reality any more. If you are buying a second home and qualifying conventionally, then a second home purchase can be done with 10% down. But more investors buying STRs are putting 20% down using STR specific DSCR loans assuming the rents can debt cover. These loans can have an interest only period of up to 10 years and the DSC ratio is calculated using the interest payment not the P and I. These loans are what is working in this high rate, low Long term rent environment.


    Interesting information.. so the rents are based typical long term leases? Or do they calculate STR avg rates or revenue to qualify?

    0Reply
  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    2y

    @Juan Zamora Typical DSCR loans use long term rental leases or appraised market rents to qualify
    STR loans use in place (if ST rented for 12 months) OR market data from Airdna, local STR operators and the like, to qualify the income.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    2y

    I think everyone has covered it pretty well @Juan Zamora.

    I like working with portfolio lenders. It can be tough to find one that does DSCR loans.

    There are a few lenders on here that specialize in DSCR for STRs. Do a search on the forum and you will find a few folks, plus the BP lender finder.

    2Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Juan Zamora:

    Hi everyone, I'm looking to jump into the STR game since the market has been crazy. I feel the time is good since theirs fear and people are hesitant because of rates not dropping, thus giving me a opportunity to make this move.

    I have a few locations in mind I've been doing my research for STR and running possible numbers but now I need to know what loans are out there? What's the best option with low DP then the traditional 20%..

    lastly of you have a awesome lender who is creative and can make it happen, please share contact Info. 

    thanks 


    Sharing this article I published last year here on BiggerPockets on this exact topic - things are generally the same as when this was written up last Fall - your best bet is likely STR-friendly STR Lenders - ones that will use forward-thinking methodologies like AirDNA, etc. - probably about one third of DSCR lenders are STR friendly at this point (most will not do STR or have very conservative UW)

    Short-Term Rental Loans: What Are the Options and How Do DSCR Loans Stack Up?

    https://www.biggerpockets.com/blog/short-term-rental-loans-a...

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    1Reply
  • Zach Edelman
    Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
    2y
    Quote from @Juan Zamora:

    Hi everyone, I'm looking to jump into the STR game since the market has been crazy. I feel the time is good since theirs fear and people are hesitant because of rates not dropping, thus giving me a opportunity to make this move.

    I have a few locations in mind I've been doing my research for STR and running possible numbers but now I need to know what loans are out there? What's the best option with low DP then the traditional 20%..

    lastly of you have a awesome lender who is creative and can make it happen, please share contact Info. 

    thanks 


    DSCR Loans are probably your best bet. With a Second Home Loan, you have to occupy the property at least 180 days out of the year. With DSCR loans, depending on who you can approach, you can get a 20% down loan with AirDNA rental qualification at rates anywhere from the low 7's and low 8's. Also, you are typically allowed 2% from seller concessions from your lender, and potentially even more, which can help with closing costs.

    2Reply
  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    2y
    Quote from @Zach Edelman:

    You sure about that? Maybe with some lenders, but my rider says nothing remotely close to this. It only says "some personal use" with no quantity specified. 

    0Reply
  • Tanner Lewis
    Lender · Austin, TX · Member since 2021 · 447 posts · 441 votes
    2y
    Quote from @Jon Martin:
    Quote from @Zach Edelman:

    You sure about that? Maybe with some lenders, but my rider says nothing remotely close to this. It only says "some personal use" with no quantity specified. 


     https://guide.freddiemac.com/app/guide/section/4201.15

    Here is the guide to the Freddie Mac second home loan guidelines. All conventional home loans must abide by Fannie Mae/Freddie Mac regulations. Check out bullet point 3 under (a) eligibility requirements which verifies that the borrower must be used for personal use and enjoyment (ie. you cannot use the property if you rent it out more than half of the year). You can run the risk of using it as a short-term rental, but doing so is a violation of the loan documents you sign at closing. There are also some restrictions on the property only being one unit, close proximity to your primary residence, among other restrictions. 

    0Reply
  • Jeremy Jareckyj
    Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes
    2y

    I do know some DSCR lenders are now taking STR rents into account. I have seen some between 10-15% DP on a DSCR but most are 20%

    1Reply
  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    2y

    @Tanner Lewis thanks for the link. Below is where the confusion may lie:

    -The Borrower must occupy the second home for some portion of the year

    -The Borrower must keep the property available primarily (i.e., more than half of the calendar year) for the Borrower’s personal use and enjoyment

    Looks like that was updated in May 2022, I closed on mine in March 2022 so my rider only included the first of the 2 bullet points above, so maybe they added the 2nd bullet point after?

    "Some" of the year could be 1 weekend per year of actually staying in the property. The 2nd bullet point is where it gets vague. Are you expected to have it available for your use 180 days a year but you don't have to actually use it? As in it's empty if you decide to go spontaneously? You would need a fairly flexible job to use your 2nd home that much. 

    0Reply
  • Tanner Lewis
    Lender · Austin, TX · Member since 2021 · 447 posts · 441 votes
    2y
    Quote from @Jon Martin:

    @Tanner Lewis thanks for the link. Below is where the confusion may lie:

    -The Borrower must occupy the second home for some portion of the year

    -The Borrower must keep the property available primarily (i.e., more than half of the calendar year) for the Borrower’s personal use and enjoyment

    Looks like that was updated in May 2022, I closed on mine in March 2022 so my rider only included the first of the 2 bullet points above, so maybe they added the 2nd bullet point after?

    "Some" of the year could be 1 weekend per year of actually staying in the property. The 2nd bullet point is where it gets vague. Are you expected to have it available for your use 180 days a year but you don't have to actually use it? As in it's empty if you decide to go spontaneously? You would need a fairly flexible job to use your 2nd home that much. 

    @Jon Martin I think the guidelines tightened from people using second home loans for STRs. Fannie/Freddie are, in theory, supposed to be used for owner-occupied properties and not investment properties, so they are trying to deter this type of behavior. I think the idea is that a property should not be booked for more than half a year (because you cannot use it when it is booked). They don't expect you to live there for half a year, but it is more of having the ability to. 

    1Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    The best is to utilize the 30 year fixed no income no doc DSCR loan . starts at 20% down

    0Reply
  • Alex Hunt
    Lender · Member since 2022 · 441 posts · 134 votes
    2y

    Happy to connect on the lending!

    Lenders will use different methods for how they get their rent # from a DSCR. AirDna is still being used a lot typically 80% of the monthly revenue shown. Most DSCR for STR will be the average 80% down. Some creative strategies will allow you to get it to 10% down but the more complicated or more expectations that are needed push the loan to higher rates. So you have to weigh the difference between lower down payment & higher rate

    0Reply
  • AJ WongBusiness Member
    Real Estate Broker · Oregon & California Coast · Member since 2022 · 822 posts · 695 votes
    2y
    Quote from @Juan Zamora:

    Hi everyone, I'm looking to jump into the STR game since the market has been crazy. I feel the time is good since theirs fear and people are hesitant because of rates not dropping, thus giving me a opportunity to make this move.

    I have a few locations in mind I've been doing my research for STR and running possible numbers but now I need to know what loans are out there? What's the best option with low DP then the traditional 20%..

    lastly of you have a awesome lender who is creative and can make it happen, please share contact Info. 

    thanks 

    STR loan options and programs can make a big bottom line difference in ROI & COC. For my luxury Oregon STR buyers the right loan can make or break the tnvestment. This year we've used a lot of medical lending programs, preferred Jumbo and concessions or buy downs. Check in with @Joseph Chiofalo good contact if you have a portfolio across states and need help on the weekends. 

    541-800-0455
    Sesemi | STR Brokers powered by Fathom Realty 516 Reviews
    WebsiteView Page
    1Reply
  • Joseph Chiofalo
    Banker · Henderson, NV · Member since 2023 · 316 posts · 73 votes
    2y

    Hi Juan, 

    Do you have a property in mind?  

    If your credit is healthy enough you may get financing available up to 85% loan to value on an STR purchase.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free