Many Americans own investment properties for extra income. There is nothing like getting income from properties without having to do day in and day out work. However, many wonder if it’s possible to qualify for a home loan with rental property income. VRBO financing is a hot market but not all mortgage lenders approve this type of investment property loan. BD Nationwide can help you find lenders that offer VRBO and AirBnB loans. For instance, VRBO is a popular website for renting investment properties. Can you get a mortgage with VRBO income as part of your gross income?
- Competitive Investment Property Loans
- Attainable Short Term Rental Loans
- Attractive VRBO and AirBnB Loan Programs
Getting a Mortgage with VRBO Income
For the most part, you can use rental income from a VRBO or Airbnb property when you apply for a mortgage.
However, like any source of income for mortgage purposes, it has to be fully documented and meet the lender’s qualifying guidelines for VRBO and AirBnB financing.
Meet Non QM and private lenders that offer VRBO and AirBnB loans to qualified borrowers.
Fannie Mae’s rental income guidelines state that you must meet the following rules for investment property income when applying for a Fannie-backed mortgage:
• You must show that it is likely that the rental income will continue. This could be shown by giving a rent roll or showing how often the property has been fully rented in the last one or two years.
• The investment property has to be a principal residence property where the borrower lives in one of the units for a two-to-four-unit property.
• You can qualify with income from vacation homes that are used part time as a VRBO.
As long as your use of the property falls within Fannie Mae guidelines, you can most likely have your VRBO income counted for your mortgage application. You just need to complete the correct forms and give the lender the right documents. The documents you need to provide depends on if your VRBO already has an established rental history.
Many borrowers want to know how to get an investment property loan approved for an Airbnb or VRBO rental with poor credit? We will introduce you to lenders that consider the potential rental property income and they advertise about quick approvals! Shop private money lenders that offer competitive mortgage rates for vacation and short-term rental properties, providing loan options that other banks and mortgage lenders will not match.
When Rental Income Is Used In Underwriting For a Home Loan
If you own the VRBO and can show the income in documents that comes from it, the income will be considered real by your lender. As long as the rental income is real from the VRBO, the underwriter will consider it.
For example, a bank could look at your tax returns for the last two years and check how much documented income has come from the VRBO. For the tax return to be sufficient proof of real income, you must file an IRS Form 1040 Schedule E. If you are filing a business return, you would complete the Rental Real Estate Income and Expenses of a Partnership form, also known as an 8825.
Fannie Mae may require that you have a new appraisal on the VRBO to estimate its current value. Assuming it is a one-unit rental, you would have your appraiser complete a Single-Family Comparable Rent Schedule.
An AirBnB loan or VRBO loan refers to any form of financing available to an investor for acquiring a property intended for use on Airbnb. While there is not a specific loan programs created solely for VRBO or Airbnb use, numerous home financing options cater to rental property investors. AirBnB and VRBO financing is a niche lending product.
When Will Predicted Income Be Accepted for a Home Loan?
There are times when your rental income cannot always be proven with tax returns and rent rolls. Suppose you just purchased a VRBO in California and want to rent it out for the rest of the year. In this case, the rental income that will theoretically come from the VRBO could be used for the mortgage application. However, you will need to prove that the property has the income potential you claim.
If the VRBO has a tenant, the lender will use a percentage of the income that is put into the least to determine what its projected rental income will be. Most lenders use 75% of the person’s total reported income. They subtract 25% for possible vacancies and maintenance.
If you do not have a tenant in the VRBO, the lender will do an appraisal and audit of the VRBO or AirBNB. They will use rental price comparables for related properties in the community to estimate what the rental income could be.
When seeking financing for an Airbnb rental property, it’s important to note that mortgages for investment properties operate differently compared to loans for primary residences. Typically, a larger down payment is necessary to secure financing, typically amounting to a minimum of 15%. Additionally, you’re likely to encounter higher mortgage rates.
When Can You Not Use Predicted Income?
It is not always possible to use predicted rental income for a mortgage application, however. First, you could have problems getting the income counted if you cannot document it. This is because mortgage lenders may ask for check copies to show that rent is being paid on time.
Further, predicted rental income can be challenging to justify if the VRBO less isn’t worth current market rent. Suppose you rent the VRBO to friends at a lower rent. If it is accepted by the mortgage lender, they may not count as much income as you would like. In this situation, you would need to use rental values that are stated in the lease as your potential income.
Qualifying For a Mortgage With VRBO Rental Income
Usually, applying for an investment property loan with rental income from a VRBO is the same as when you qualify with regular income. But you may need to provide more documentation to prove what your predicted or real income is. Now there are mortgage lenders offering HELOCs on investment homes and rental properties.
You will need to show your VRBO income at the same time you give your lender financial information required for your application. Generally, you will need to give copies of these documents:
• Two years of 1099s or W-2s
• Tax returns for two years
• Pay stubs from your work for the past month
• Monthly or quarterly bank statements for the last year.
• Profit and loss statement if you’re self-employed
• Real estate purchase agreement contract
You can expect the lender to verify the income you claim from the VRBO or AirBnB. This is usually done with an appraisal to ensure that the property can produce the income you claim. If you already have a tenant, you may need to provide a copy of the lease for the VRBO.
Are there conventional AirBnB loans?
Yes, conventional loans are a viable option for financing an Airbnb property. These long-term mortgages are typically obtained from a bank and are not part of any specific government program. They can be used to finance a room rental or an investment property.
Conventional loans can be both cost-effective and accessible, but there are some important considerations: The terms for a rental property may differ from those for a primary residence. Traditional lenders might not fully understand the unique income structure of short-term rentals, and you may need to provide a year’s worth of short-term rental income from other properties you own.
Are VRBO and AirBnB Loans Difficult to qualify for?
An Airbnb loan, or VRBO financing is often referred to as a short-term rental loan, can be utilized for various purposes based on the borrower’s needs and financial situation, typically a real estate investor or an Airbnb host. Common uses include purchasing a vacation rental, tapping into the equity of a short-term rental, renovating or furnishing a VRBO or Airbnb property, and covering the ongoing expenses of running a rental business.
What is debt service coverage ratio?
In the real estate business, the debt service coverage ratio (DSCR) is a metric that compares a company’s cash flow to its debt obligations. Business owners and investors use debt service coverage ratio to determine if the company is generating sufficient net operating income to cover its current debts, including both principal and interest.
The debt service coverage ratio can guide future business decisions, such as whether the company has the financial capacity to repay existing loans and take on additional debt. It also helps lenders evaluate the strength of business financing applications and the level of risk they assume by lending to the company.
A DSCR loan is a type of real estate loan where lenders assess the borrower’s ability to repay the loan based on the income generated by the property, using the DSCR ratio as a key measure. You can obtain a DSCR loan for a VRBO or Airbnb property, but the eligibility criteria and loan terms will vary based on the lender’s specific policies and requirements.
Alternatives to AirBnB and VRBO Loans
Similar to a second mortgage or a HELOC, another type of VRBO loan allows you to borrow money based on the equity in your vacation rental. The most effective options for tapping into this equity are cash-out refinances, home equity loans, and HELOCs.
Reflections on Getting Approved for a Home Loan with VRBO Income
You can definitely use the rental income from your AirBnB and VRBO when applying for a mortgage. You may need to jump through more hoops and provide additional documentation, but it is possible to secure short term rental loans and AirBnB financing. Lending experts suggest that exploring specialized Airbnb loans or working with lenders familiar with the vacation rental market could result in more favorable terms. BD Nationwide can help you find these niche lenders that specialize in AirBnB and VRBO loans.
