Getting a DSCR Loan for an Airbnb: The Easy Way

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Join us in explaining what the DSCR is, how you can use it to get a loan as an Airbnb owner, and the right steps to take moving forward.

Have you ever wanted to take out a loan to expand your portfolio or to improve your current investments? How big of a loan can you take on? Well, the DSCR can tell you everything you need.

The DSCR is a simple metric that not only tells you your current financial health but also helps you decide if you can pay out your loans on time. Let’s discuss DSCR and everything else you need to know about it as an Airbnb owner.

What is a Debt Service Coverage Ratio (DSCR)?

Are you an Airbnb host looking to take out a loan? Traditional loans often use a person’s salary and other earnings to determine their capability to pay. However, as an Airbnb host, most of your income doesn’t exactly come from “salaries.”

The good news is that there’s a special type of loan that you can apply for. It’s called a DSCR loan and is only applicable to income-generating property owners like Airbnb hosts.

Lenders will use a Debt Service Coverage Ratio (DSCR) to determine if you can pay your dues based on your assets. It uses your projected rental income as the main basis to determine if you qualify for a loan.

What is a DSCR Loan for Airbnb?

Unlike traditional loans, which take a look at tax returns, employment records, and others, a DSCR loan enters into a mortgage using the cash flow your property produces. This can make it very beneficial for Airbnb owners who might not have most of these required documents.

Lenders will instead use your property’s flow of income without the need to request proof of income to qualify. Standard loans may not even be an option for some owners due to all of the documents they require. Luckily, DSCR is here to save the day.

The Advantage of DSCR Loans Vs. Traditional Loans

The main advantage you can get out of DSCR loans rather than the standard ones is that they use your Airbnb’s income as the basis. For an owner whose main revenue only comes from short-term rentals, this can be a huge lifesaver for those much-needed loans.

DSCR loans can also make it easier for investors with multiple revenue streams to qualify for loans. It also greatly streamlines the process since they’ll only be looking at how much your property earns.

It’s also a huge advantage to people with large portfolios since it can accommodate various property types, from simple homes to complex quadruplexes and more. Although potential DSCR loan rates can be slightly higher than traditional mortgages, it’s likely that you can get higher loans, especially for popular Airbnb rentals.

How is DSCR Calculated?

The DSCR can simply be calculated by dividing your property’s Net Operating Income (NOI) by your total debt service.

DSCR = Net Operating Income (NOI)/ total debt service

The NOI of a property is simply the total annual income generated by the property after deducting all of your operating expenses. Operating expenses can include everything from maintenance and utility bills, property management fees, taxes, and insurance.

On the other hand, the total debt service is simply the amount of loan payments that are due for a year. It also includes the principal and interest payments for all debts applied to the property.

What’s a Good DSCR?

When it comes to your DSCR, the higher your score, the higher your chances of getting approved for a loan. A DSCR score that’s higher than 1 indicates you have more than the necessary income to cover your debt. Conversely, a score that’s lower than 1 indicates the property isn’t generating enough revenue to pay your debts. Of course, a DSCR that’s exactly 1 means that you have enough but have little to no room left for error. A single booking cancellation can easily tilt your earnings into the negative.


DSCR = $130,000(NOI)/ $100,000 (total debt service) = 1.30

A DSCR score of 1.30 indicates that your Airbnb property generates 30% more income than needed to cover your debt payments. A score of 1.30 is a really good DSCR rating. Most lenders will want property owners with a score of 1.25 or higher; anything lower, and you’re already starting at a disadvantage.

Ideally, you should calculate your DSCR score before attempting to apply for a loan. You can use BNBCalc to help you get your annual revenue, along with all of your expenses, to determine your NOI.

Preparing for a DSCR Loan Applications

Now that you know what DSCR is and how it’s calculated, the next step is to prepare to apply. Of course, it’s essential to already have your DSCR score before proceeding with an application. As a rule of thumb, properties with a score of 1.20 or higher would be the only ones worth applying for.

Eligibility and Qualifications

While lenders typically use your DSCR score as the main basis, they might still consider a couple of other factors. These factors will vary depending on the lender, but usually include:

  • Net Operating Income - Your property’s rental income minus your general operating expenses.
  • DSCR Threshold - A score of 1.0 or higher means that you can properly pay payments. However, lenders will typically want at least a 1.25 DSCR to ensure that you’ll have the ability to pay in the long run.
  • Loan-to-Value (LTV) Ratio - an LTV simply compares the total loan amount to your property’s current value. In this case, a lower LTV is better since it means that you have more equity within the property.
  • Credit Score - Don’t worry. The primary focus will still be on your property’s income. However, lenders still want to see good credit scores from the owners, often starting at a minimum of 620 to 680.
  • Property Eligibility and Condition - DSCR loans are available for single-family homes, condos, and multiple units. They’ll also be appraising the current condition to confirm its income-generating potential.

Step-By-Step Process

Here’s a quick rundown of the step-by-step process involved in applying for a DSCR loan.

Step 1: Determine your property’s income potential by using the DSCR formula we’ve discussed above.

Step 2: Research the best lenders by comparing their interest rates, fees, and other DSCR requirements.

Step 3: Prepare the necessary documents like financial records, title deed, lease agreements and proof of insurance.

Step 4: Properly fill out the loan application form and provide accurate details about you and your property. Ensure that everything is in order before submitting it to the lenders.

Step 5: The lender will usually perform a property appraisal and inspection to confirm its current market value, along with its income-generating potential.

Step 6: The lender will review your application, along with any submitted documents. They are also going to verify all information you’ve submittedbefore proceeding to the next step.

Step 7: Loan approval and release. Congrats! All you’ll have to do is sign the loan documents, pay the closing fees, and you’ll receive your funds.

Why Choose a DSCR Loan for an Airbnb

Opting for a DSCR loan for your Airbnb property offers distinct advantages over traditional loans, especially for hosts seeking flexibility and an investment-centric approach to financing.

This focus on the property’s income potential is particularly advantageous for Airbnb hosts, as it directly aligns with their business model. It enables hosts to leverage their property's performance, rather than personal financial metrics, to secure financing. It’s perfect for Airbnb hosts with variable income because it lets you showcase your property's earning power to secure funding.

DSCR loans often have a simpler application process with less paperwork needed to verify your income. This can be a lifesaver for Airbnb hosts who rely heavily on their rental income and might not have the traditional documents lenders ask for.

Wrapping Things Up

Now, you're equipped to navigate the exciting world of DSCR loans! With its focus on your Airbnb's potential, a DSCR loan can unlock the financing you need to turn your dream vacation rental into a reality. Buckle up and get ready to welcome your first guests!


What Is the Interest Rate for the DSCR Loan?

The interest rate for a DSCR loan varies depending on the lender, the borrower's credit profile, the property's income-generating potential, and market conditions. Generally, rates might be slightly higher than those of traditional mortgages due to the perceived higher risk associated with basing the loan on property income rather than personal income.

Does a DSCR Loan Show up on Credit Report?

No, they don’t typically show up on a credit report. Unlike traditional loans, they aren’t based on your credit score or history. This means that it doesn’t need to be on the credit report.

What Are the Disadvantages of DSCR?

  • Potentially Higher Interest Rates: Due to the focus on property income, rates may be higher compared to traditional loans.
  • Property Income Reliance: If rental income decreases, it could affect your ability to meet loan obligations.
  • Limited Flexibility for New Investors: Those without established rental income may find it challenging to qualify.

Reveal your property’s rental profitability

Buy this property and list it on Airbnb.