What type of loan is best for STR investment property?

Buying an investment property is easy. Financing it correctly is not.

If you choose the wrong loan, you lock in tight cash flow, limit scalability and increase risk. With 30-year mortgage rates averaging around 6%, small financing differences can mean thousands per year.

Short-term rental investors face an extra challenge. Airbnb income fluctuates. Tax returns often show lower income due to depreciation. Regulations shift market stability. Traditional lenders were not built for that.

In this guide, you’ll learn which loan types work best for short-term rental investors and how to choose the one that protects your cash flow and scaling strategy.

If you want to see how professional property managers protect cash flow and scale faster, book a free demo of Hostaway and see the platform in action.

Key takeaways

• DSCR loans are often the best choice for STR investors. They allow you to qualify based on the property's projected income rather than your personal tax returns.

• Conventional loans offer the lowest rates but are harder to get. These are best suited for borrowers with stable W-2 income and very strong personal credit profiles.

• Expect to pay more upfront. Most investment property loans require down payments of 20-25% and larger cash reserves than primary home loans.

• "House hacking" lowers the barrier to entry. New investors can use FHA or VA loans with as little as 0-3.5% down if they live in one of the property's units.

• Equity can fund your growth. Existing homeowners can use HELOCs or home equity loans to fund down payments and renovations for new investments.

What is an investment property loan?

An investment property loan is a mortgage used to purchase real estate you do not live in as your primary residence.

These include:

• Airbnb properties

• Vacation rentals

• Long-term rental properties

• 1-4 unit residential investment properties

Because borrowers are more likely to default on investment properties before primary homes during financial distress, lenders require:

• Higher down payments

• Higher interest rates

• Larger cash reserves

• Stronger credit profiles

In short, financing a rental property is harder than financing your home.

Best loan types for investment property ranked for STR investors

1. DSCR loans: best for Airbnb and short-term rental investors

If you are searching for:

• Best loan for Airbnb property

• Mortgage using rental income

• Investment property loan without tax returns

The answer is often a Debt Service Coverage Ratio (DSCR) loan. DSCR loans qualify you based on the property’s income instead of your personal income. Most lenders calculate DSCR like this:

DSCR = Net operating income ÷ Total monthly mortgage payment

They typically use 75% of gross rental income.

Example:

Airbnb gross income: $6,000 per month Qualifying income (75%): $4,500 Mortgage payment: $3,600

DSCR = 1.25

Most lenders require 1.0-1.25.

Lenders are seeing continued growth in non-QM lending products like DSCR loans, growing from representing 5% of all originations in 2024 to more than doubling that figure in 2025. 

Typical DSCR requirements include:

• 20-25% down

• 620-680+ credit score

• No personal tax returns required

• Slightly higher interest rates than conventional loans

For short-term rental investors, DSCR loans align financing with property performance. That makes them one of the most scalable options available.

2. Conventional investment property loans: best for strong W-2 income

Conventional loans usually offer the lowest interest rates. But they require stricter documentation.

Typical requirements include:

• 15-20% down

• 620+ credit score (740+ for best pricing)

• Debt-to-income ratio under 45%

• 6-12 months of reserves

Conventional loans are best for investors who:

• Have stable W-2 income

• Show strong personal income on tax returns

• Own fewer than ten financed properties

They are less ideal if your Airbnb income fluctuates or your tax returns show reduced net income due to deductions.

3. Portfolio loans: best for flexible scaling

Portfolio loans are offered by banks and credit unions that keep the loan in-house instead of selling it to Fannie Mae or Freddie Mac. [Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government sponsored enterprises (GSEs) that guarantee most of the mortgages made in the U.S.]

Because of that, they can:

• Accept alternative documentation

• Work with complex investor scenarios

• Structure relationship-based approvals

Typical requirements:

• 20% down

• 680+ credit score

• Competitive rates

For experienced investors building local banking relationships, portfolio loans can unlock long-term scaling flexibility.

Alternative loan options for investment property

DSCR and conventional loans cover most short-term rental investors. But depending on your situation, other financing options may make sense.

FHA loans: best for house hacking

Federal Housing Administration (FHA) housing loans allow you to purchase a two- to four-unit property with as little as 3.5% down if you live in one of the units.

For new investors, this can be a powerful entry strategy:

• Live in one unit

• Rent the others

• Build equity with minimal capital

After meeting occupancy requirements (typically 12 months), some investors convert the property into a full rental.

FHA loans are not designed for non-owner-occupied Airbnb property purchases. But they can lower the barrier to entry.

VA loans: best for eligible military investors

If you are an eligible veteran, active-duty service member, or qualifying spouse, Veterans Affairs (VA) home loans allow you to purchase up to four units with 0% down.

Key benefits:

• No down payment

• No private mortgage insurance (PMI)

• Competitive interest rates

Like FHA loans, VA loans require owner occupancy. But they can dramatically reduce capital requirements for investors starting out.

Home equity loans and HELOCs: best for scaling

If you already own property, you may be able to tap existing equity to fund your next investment.

Two common options:

Home equity loan

• Fixed interest rate

• Lump sum

• Predictable payments

HELOC (Home Equity Line of Credit)

• Variable interest rate

• Revolving credit line

• Flexible draw period

HELOC rates are typically tied to the prime rate, published by the Federal Reserve.

For short-term rental investors, equity financing is often used for:

• Down payments

• Renovations

• Furnishing and setup costs

Be cautious. If rental income declines, your primary residence may be exposed.

Hard money loans: best for renovation projects

Hard money lenders prioritize speed over pricing.

They are commonly used for:

• Distressed property purchases

• Heavy renovations

• Fix-and-refinance strategies

Typical terms:

• 10-15% interest

• Short repayment periods (6-24 months)

• Higher upfront fees

Hard money is rarely a long-term hold solution. It works best when you plan to refinance into DSCR or conventional financing after stabilizing the property.

Private money loans: best for relationship-based deals

Private money loans come from individual investors rather than banks.

These are often:

• Shorter-term

• Negotiated case by case

• Based on relationship and trust

For experienced investors with strong track records, private lenders can offer flexibility that traditional institutions cannot.

However, terms vary widely. Clear contracts and legal documentation are critical.

How much down payment do you need for an investment property?

Down payment requirements depend on the loan type and whether the property is owner-occupied.

For non-owner-occupied investment properties, most traditional lenders require:

• 15-20% down for conventional loans

• 20-25% down for DSCR loans

• 10-30% down for hard money loans

If you plan to live in the property, lower down payment options apply:

• 3.5% down for FHA loans (owner-occupied only)

• 0% down for eligible VA borrowers (owner-occupied only)

Equity-based financing such as home equity loans or HELOCs does not require a traditional down payment but uses existing property equity instead.

In most cases, if you are purchasing a non-owner-occupied short-term rental using standard mortgage financing, plan for at least 20% down.

Can you use rental income to qualify for an investment property loan?

Yes, but how rental income is treated depends entirely on the loan type.

For conventional loans, lenders typically require one to two years of documented rental income reported on tax returns. They may also apply vacancy adjustments before counting that income.

DSCR loans qualify based on projected property income instead of personal income. Lenders usually calculate 75% of gross rent and compare it to the mortgage payment.

Portfolio lenders may accept alternative documentation depending on the relationship and bank policy. Hard money lenders focus more on the property’s value and exit strategy than on income documentation. And equity-based loans such as HELOCs and home equity loans rely on your existing property equity rather than rental income qualification.

For Airbnb investors, this distinction is critical. If your tax returns show lower income due to depreciation, DSCR or portfolio lending may provide more flexibility than conventional financing.

Is it harder to get a loan for an Airbnb property?

In many cases, yes, especially with traditional lenders.

Short-term rental income is often considered less stable than long-term leases. As a result, some lenders may:

• Discount projected Airbnb income

• Require longer operating history

• Increase reserve requirements

• Avoid heavily regulated STR markets

Short-term rental occupancy and revenue volatility varies significantly by city, particularly in markets with evolving regulations. However, DSCR lenders and some portfolio lenders specialize in short-term rental financing and are more comfortable underwriting vacation rental properties.

Regulatory risk also plays a role. Before applying for a loan, confirm:

• Short-term rental legality

• Permit and licensing requirements

• HOA restrictions

• Local enforcement activity

Markets with licensing caps or uncertain regulation may face stricter underwriting standards.

For STR investors, working with lenders familiar with vacation rental performance metrics can significantly improve approval odds.

Comparison of loan types

Once financing is secured, maximizing occupancy and dynamic pricing becomes critical to maintaining healthy DSCR levels.

Choosing the right loan for your STR strategy

The best loan depends on:

• Your income structure

• Your available capital

• Your scaling goals

• Your target market’s regulatory environment

If you have strong W-2 income, conventional loans may offer the lowest cost. If you rely on short-term rental income, DSCR loans often provide the most scalable flexibility. But financing is only step one.

Your long-term profitability depends on:

• Revenue optimization

• Expense control

• Occupancy management

• Real-time performance tracking

Comprehensive property management software helps stabilize revenue and track performance metrics in real time. 

Secure the right loan. Then build systems that protect your cash flow.

The right loan should support your growth, not limit it

Choosing the best loan for an investment property is not just about finding the lowest interest rate. It’s about aligning financing with your business model.

If you earn steady W-2 income and want long-term stability, conventional loans may offer the lowest cost of capital. If your short-term rental generates strong revenue, DSCR loans often provide the flexibility to scale without being constrained by personal income limits. 

If you’re entering the market with limited capital, FHA or VA house hacking can lower the barrier to entry. If you’re renovating or moving fast in competitive markets, hard money may help you secure deals, with a plan to refinance later. And if you already hold significant equity, home equity financing can accelerate expansion without starting from scratch.

The common thread? Your financing strategy should match your stage, your market, and your scaling goals. But financing alone doesn’t protect your investment.

Maintaining a healthy debt service coverage ratio depends on consistent revenue, optimized pricing, controlled expenses, and strong occupancy rates. That’s where systems matter. Property management software can help you monitor performance, automate operations, and protect your cash flow as you grow. 

Choose the right loan. Then build the infrastructure that makes it sustainable.

FAQs

What is the best type of loan for an Airbnb or short-term rental (STR) investment property? 

For most STR investors, a DSCR (Debt Service Coverage Ratio) loan is often the best option. This type of loan qualifies you based on the property's income rather than your personal income, which is ideal for investors whose tax returns may show lower personal income due to business deductions.

Can I use a conventional loan for an investment property? 

Yes, conventional loans are a good option for investors with stable W-2 income and strong personal income shown on their tax returns. They usually offer the lowest interest rates but have stricter documentation requirements, including a debt-to-income ratio under 45% and 6-12 months of cash reserves.

Is it more difficult to get a loan for an Airbnb property compared to a traditional rental?

Yes, it can be more difficult, especially with traditional lenders who may view the fluctuating income of a short-term rental as less stable than a long-term lease. Lenders might discount projected Airbnb income or require a longer operating history. However, specialized lenders, such as those offering DSCR loans, are more familiar and comfortable with underwriting vacation rental properties.

What is "house hacking" and what loans are best for it? 

House hacking is a strategy where you buy a multi-unit property (2-4 units), live in one unit, and rent out the others to build equity with minimal initial capital. The best loans for this strategy are FHA loans, which allow for a down payment as low as 3.5%, and VA loans for eligible military investors, which may require 0% down. Both loan types require the owner to occupy the property.

Can I use the equity from my current home to buy an investment property? 

Yes, if you already own property, you can use its equity to fund your next investment through a home equity loan or a Home Equity Line of Credit (HELOC). A home equity loan provides a lump sum at a fixed interest rate, while a HELOC offers a flexible line of credit with a variable rate. This financing is often used for down payments, renovations, or furnishing a new rental property.