Tuesday, 18 December 2018 00:00

Everything You Need to Know About an Airbnb Loan

airbnb loanSince its inception back in 2008, Airbnb has changed the way people find places to stay when they travel. The days when hotels and motels were the only two options are long gone.

Airbnb has made it so that anyone who owns a home can make a nice little side income – or even a fulltime income – by renting it out to others.

If you’d like to get in on the action but don’t want to use your current residence, one option is to use an Airbnb loan to purchase a rental property.

What Is an Airbnb Loan?

There is actually no such thing as an official “Airbnb loan.” The home-renting giant remains content in their field and hasn’t shown any signs of wanting to branch out into offering mortgages, too.

 

 

Instead, the term “Airbnb loan” has come to refer to any financing that someone takes on specifically to purchase a home they’ll rent out to others via the popular platform.

The 4 Most Popular Options for an Airbnb Loan

Just because there’s no official “Airbnb loan,” that doesn’t mean you’re lacking for options. There are actually four types of loans people tend to use when looking to buy a rental property they can list on the popular site.

1. A Traditional Mortgage

Perhaps the most common option most people think of when they want an Airbnb loan is the traditional mortgage. This is generally referred to as the Uniform Residential Loan Application (Form 1003).

It’s the same type of mortgage most people use when they purchase their primary residences, which is where things can get a bit sticky if you only want the property for Airbnb purposes.

On Form 1003, you need to specify how you intend to use the property. Is it going to be your primary residence, a secondary residence, or an investment property?

It can only be considered a primary residence if you actually intend to live in it for most of the year. In most cases, you have to actually move into the home within 60 days of closing or its standing could be in jeopardy.

At the same time, there are no laws against buying a home listed as your primary residence and, later, moving out but keeping it as a rental property. Many people collect rent on their primary residence while still living in it by taking on a roommate – still perfectly legal.

You just can’t apply for the mortgage with this intention in mind – unless you list it – or you risk committing occupancy fraud.

2. An Investment Property Loan

Although traditional mortgages may be behind most Airbnb properties, those who buy homes specifically to rent them out usually use investment property loans.

This smooths out a lot of the aforementioned wrinkles, but there are still a few caveats.

First, it will be harder to qualify if you can’t show what the home is worth in rent. This is much easier to do with a traditional rental property, one that you intend to rent out to full-time tenants. If you only mean to rent it out through Airbnb, it’s more difficult to make a case for how much it will bring in each year.

Second, expect that it will cost more both in interest and your down payment. Lenders tend to charge more for these properties because, again, they’re not sure how much it will make and worry borrowers will default on a home that isn’t their primary residence.

Third, qualifying for this type of loan may also require an LTV ratio of 80% or more, a credit score of at least 740, and liquid reserves that are good for six months.

Fourth, the lender will want a rental schedule to go along with an appraisal. It should make a case for the kind of income you expect it will generate.

3. An Asset-Based Loan

Another option is an asset-based loan. As the name suggests, this is a loan you qualify for by levering other assets you own.

Homeowners with just one residence typically use these loans when buying an investment property by putting up their house as collateral. Among other things, it saves them from the hassles associated with traditional and investment-property loans.

The drawbacks of these loans have to do with hefty down payments that tend to be between 25 to 30% and higher interest rates.

Still, they’re easier to qualify for and, if you intend to begin renting out your property on Airbnb, the higher interest rates will be covered in the mortgage, which will also help you earn back that large down payment.

4. A Blanket Loan

Maybe you’ve already successfully used one of the Airbnb loan options above to purchase your first property and rent it out to guests. Or maybe you haven’t used Airbnb yet, but you own other rental homes and have seen their clear potential.

In any case, if you’re now ready to scale up your operation to include numerous Airbnb rental properties, it’s hard to think of a better lending option than a blanket loan.

This type of loan is designed to provide financing for multiple properties through one single mortgage. Builders and developers often use them to buy large plots of land and turn them into individual properties.

However, investors who want large portfolios favor them, as well. Blanket loans that save them on administrative costs are far more convenient than multiple loans. A lot of times, they’re the only way to find funding for more than a few homes at a time.

As with asset-based loans, lenders don’t care about your personal finances, either. All they want to know about is your properties’ potential to make money.

Show that it will be easy for you to repay them and the loan is as good as yours.

Getting Started with Your Airbnb Loan

Now that you better understand your options for Airbnb loan, you may feel ready to take the next step.

In that case, we’re here to help. At Rental Home Financing, we specialize in assisting experienced investors who want to add more properties to their portfolios.

If you’ve struggled with traditional lenders in the past, we’d love to work with you. Just complete our loan application and we’ll get back to you ASAP, so you can begin improving your portfolio right away.

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