Airbnb loans are the go-to choice when you want to buy a property for Airbnb-related real estate investments. Currently, there are 6.6 million listings on Airbnb in over 220 countries, with around 150 million users.
Airbnb investment can be a lucrative opportunity and a good source of passive income. You can rent an Airbnb property with several financing sources available.
🏨 Airbnb Financing
- Since an Airbnb is a form of investment property, it requires a minimum down payment of 15%.
- Getting a loan for Airbnb can be tough due to the irregular income.
- Between 2008 and 2023, Airbnb rentals have hosted more than 1.8 billion guest stays worldwide.
What Is an Airbnb Loan?
One way to fund the purchase of an Airbnb property is by opting for Airbnb loans. There aren’t specific loans for Airbnb use, while some types of loans are available for rental property investors.
However, it can be difficult to qualify for a loan on an investment or a rental property. The lender may ask for a larger down payment and a high-interest rate.
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Types of Airbnb Loans
The various types of loans you can use toward house purchases on Airbnb include:
1. Conventional Loans
Government-sponsored enterprises like Fannie Mae and Freddie Mac offer conventional loans. Loan requirements for investment purposes like Airbnb are different from those for residential home purchases.
Conventional mortgage requirements for Airbnb include:
- 15% to 25% down payment
- A credit score of 640 or higher
- Minimum 6 months of cash reserves
2. Cash-out Refinance
A cash-out refinance is a financial strategy where you can refinance your existing mortgage for a larger sum. You receive the difference between the old and the new loan in cash. However, you can only refinance up to 80% of your home value.
Cash-out refinance requirements for Airbnb are as follows:
- A credit score of 620 or higher
- 20% equity in the property
3. HELOC
You can use your home’s equity to pay down payments on the loans for Airbnb properties through a Home Equity Line of Credit (HELOC).
HELOC requirements for Airbnb funding are:
- A credit score of 740 or more
- A debt-to-income ratio of 43% or lower
4. Hard Money Loans
Hard money loans can be a plausible option to fund Airbnb properties. Private lenders offer these loans, which carry high interest rates and short repayment periods.
Moreover, you don’t require a good credit score to buy an Airbnb property through hard money loans.
Financing requirements for an Airbnb property:
- A down payment of 30% or more
- Prepayment penalty on the loan
- Multiple appraisals of the property
Challenges in Obtaining an Airbnb Loan
It can be challenging to get a loan for an Airbnb home in comparison to a traditional home due to some underlying risks.
1. Unforeseen Expenses
Your Airbnb property may incur unexpected expenses due to the occupant’s negligence. These costs can put any Airbnb investor in a difficult situation, with the increase in low-tenancy issues.
2. No Rental History
Most lenders ask for rental records for the property. This may be tough for someone new to hosting, as they may not have a record to show.
Lenders need records to ensure the property is profitable and generates income.
3. Risk of Repayment
The revenue from Airbnb rentals can’t be consistent as it depends on occupancy. Your Airbnb may face low occupancy during the off-season. Henceforth, it may get tough for you to repay the mortgage.
Other Financing Options for Airbnb Properties
There are other options you can opt for to fund your Airbnb property purchase, which include:
1. Buy a Second Home
It’s difficult to get a loan for an investment property. However, it’s tougher for a property that you rent out frequently and for shorter periods.
Having said that, you may consider buying a second home and renting it for a longer period for financial stability.
2. Buy a Multi-Unit Property
You can apply for a VA or an FHA loan to purchase a four-unit building and use it for Airbnb. However, you must live in one of the units to be able to rent out other ones.
Moreover, a multi-unit property can be a good choice for those unable to manage distant properties.
3. Consider a Home Equity Loan
A home equity loan is also known as a second mortgage. You can get a lump sum of money against the equity in your primary home.
However, you must consider this option carefully, as the lender will hold your primary residence as collateral.
Find Homes For Sale by Home Type and Style
The market offers a wider range of homes than ever before. But don’t get overwhelmed! Knowing your preferred style can help you narrow your search. Here are some options to target your search by home style:
Bottom Line
An Airbnb investment can be a good source of passive income. There are several options to finance an Airbnb home. However, there are certain challenges that you may encounter while applying for Airbnb loans.
There are various alternatives, such as HELOC, multi-unit homes, and buying a second home, that you can consider. Despite that, you must conduct thorough research on all the costs involved in owning an Airbnb.
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Frequently Asked Questions
How to buy an Airbnb property with no money?
There's no way you can buy an Airbnb property without a down payment. However, you can use certain strategies, like cash-out refinance or home equity loans, to pay the down payment.
Can I Airbnb my house if I have a mortgage on that property?
Yes, in most cases, you can list your home with a mortgage on Airbnb. However, you must check if there are any restrictions regarding Airbnb in your mortgage commitment letter.
Can you get a business loan to buy an Airbnb property?
Yes, you can get business loans to purchase a property for Airbnb. Since using a house for Airbnb is considered a business, lenders provide these loans.
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