Can You Get a Mortgage for an Airbnb Rental Property?

It's easier than ever to own and even manage a vacation rental property, thanks to platforms like Airbnb and Vrbo. Owning a vacation rental can be a great way to maximize the income potential of real estate, and it could be a great way to own property in an area you've always wanted to have a home in without having to bear the full cost on your own.

However, getting a mortgage for a vacation rental can be a little more difficult than obtaining a mortgage for a home you plan to live in. While it's certainly possible to finance a short-term rental property, there are a few things you need to know.

What kind of mortgage can you use to buy an Airbnb?

The short answer is that you can obtain an investment property mortgage to buy a short-term rental property. Conventional mortgages are available for the purchase of investment properties, and there are numerous other options. Most major mortgage lenders offer investment property loans, and in many cases, these can be used for short-term rentals.

However, there are a few things you should know before you start shopping around for a loan:

• Investment property mortgages typically require at least a 20% down payment.
• Investment property mortgages often have higher interest rates than comparable primary residence mortgages. Expect to see rates about 0.50%-0.75% higher than the current market rates.
• Some mortgage lenders may be hesitant to lend on short-term rental properties. Their cash flow isn't as stable as long-term rentals, and they are more vulnerable to economic conditions.
• You might not be able to use the anticipated income from the property to qualify for the loan. When applying for an investment property loan for an Airbnb rental, your income must justify the new mortgage, in addition to any existing mortgage(s) you have.

Having said all of that, if you find a property that would make an excellent Airbnb and you want to buy it, you can use the same type of investment property mortgage that is typically used for long-term rental properties. Just be aware of these potential drawbacks.

Alternatives to investment property loans

Because of the higher perceived risks involved, investment property loans can be prohibitively expensive or not available at all.

In some cases, you can use a "second home" loan to finance an investment property. Not only is it generally easier to qualify for second home financing than an investment property mortgage, but second home loans tend to also have more flexible down payment requirements and usually have interest rates closer to those of primary residence mortgages.

Different mortgage lenders have different definitions of a second home. You typically need to spend a certain number of days at the property each year, and there might be a cap on the number of days you can rent. Also, a second home typically needs to be a certain distance away from your primary residence. But if you qualify, a second home loan can be a solid alternative.

Another potential alternative is to "house hack" -- that is, buy a multi-unit property and live in one unit while renting out the others. For example, FHA loans can be used to buy homes with two to four housing units with down payments as low as 3.5% in most cases. So, if you see a four-unit property listed for $750,000, this means you could potentially buy it with $26,250 down and have not one, but three units to turn into vacation rentals, as long as you're planning to live in the property yourself.

Finally, the best way to buy an Airbnb could be with cash. I completely understand that not everyone has enough cash sitting around to buy a rental property, but it's possible to use a home equity loan or HELOC to utilize the equity you already have in your home. Not only can this be easier than trying to finance the new property directly, but it effectively makes you a "cash buyer," which can help your offers carry more weight when shopping.

The bottom line on Airbnb financing

It's entirely possible to get a mortgage to finance an Airbnb, but depending on the situation, your best choice might not be a traditional investment property loan. The best bet is to figure out what financing options apply to the home you'd like to buy, and then shop around for the best lender and loan terms.