These loans are generally High-Interest Rates, Adjustable Rates, Short Terms, Limited Locations, etc. Our Lender/Clients will be looking for an appraisal to secure a loan on the STR this is often considered a Debt Service Coverage Ratio (DSCR) Loan. Qualifying for a conventional mortgage on one of these properties is a challenge and without a tenant in place or proof of income, most lenders won’t even consider financing the investment property. Those investors (borrowers) are going to want to seek financing for the purchase transaction or to support a refinance. The number of short-term rentals has increased exponentially over the last several years, and in some markets, investors are generating significant revenue even on just one property. With the introduction of STRs it presents a profitable opportunity for investors of all kinds. In either case, the focus is on providing affordable housing to residents consistent with the GSE policies. In other cases, we purchase a home for its income potential, renting the property to a tenant. Some transactions are considered long-term investments, to live in it and accrue equity. The purchase of real property for the purpose of investment is not new. This is creating significant friction in the lending environment. Borrowers can take advantage of the superior STR income on one side and are denied that advantage on the other side.

This imbalance in the lending equation has created the situation we find ourselves in today. While STR Income is allowed on the Borrowers income statement, the Market Rents for the collateral still needed to be based on longer-term leases. However, the GSEs did not make a parallel change to the Property Qualification side of the lending decision. In 2018, the GSEs changed policy to allow Airbnb, VRBO, Vacasa, etc (also known as “Short-Term Rentals” or “STRs”) hosts to claim STR income as part of the Borrower Qualifications side of the lending decision.

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