All Forum Posts by: Ruth Schrader-Grace

 In that case, and you are willing to provide the required income info, when you look at the TRUE cost of a loan (rate, up front costs and pre-payment penalty, not just rate) conventional will be the best option every time. 

 Sharing an article published just last year on BP on this exact question:

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...

High Level -

-Conventional will typically offer lowest rates/fees but harder to qualify, especially if you are scaling and past the first couple of properties or going for the high-end of the market

-2nd Home (10% Down) - should be very careful here - these are not intended for STR properties and people using them for pure investment properties are entering dangerous territory (you are attesting to use it as a rental half the year or less, no management, need to live in proximity, etc.)

- DSCR Loans - typically your best bet if you don't quality (or have "outgrown") conventional or looking to scale a portfolio or diving into more specialized markets. Note - DSCR lenders can vary quite a bit when it comes to their underwriting/qualification/overall friendliness towards STRs so make sure you are aware of the differences

 In that case, and you are willing to provide the required income info, when you look at the TRUE cost of a loan (rate, up front costs and pre-payment penalty, not just rate) conventional will be the best option every time. 

I would add you should only do business with a lender who can BOTH. if the LO does not understand how DSCR loans work then then they would likely not be a good fit. But, if they are not licensed (they will have a NMLS number and have to show it on correspondence) they they can ONLY do DSCR loans. You want the best product for YOU, not the product your LO can actually do.

Hey Ruth, 

What are you in search for? As Jay mentioned above, conventional financing is technically the best product if you qualify for it. 

You can look into DSCR financing, however there will be prepayment penalties and they generally have higher fees. Rate wise, you could get more favorable rates going DSCR than on a conventional loan in some instances. I think the main drawback is being on a Prepayment Penalty in a rate decreasing environment. You could buy it out or increase the rate to reduce the years, but it will result in a much more costlier loan.

Hi Ruth,

For STR (Short-Term Rental), MTR (Mid-Term Rental), and second/vacation homes, DSCR Loans (Debt Service Coverage Ratio) are often the best option. These loans focus on the property's income potential rather than the borrower's personal income, making them ideal for investment properties. They offer flexibility and are specifically designed for rental properties.

Best, Stacy

Because conventional is the best product IF you can qualify and/or eligible for it in all cases. so, that should always be the first look. If you cannot qualify or not eligible (if you already have 10 properties financed) then you look at other options like DSCR or other alternatives like non-QM options.