Investing in short-term rentals (STRs) like Airbnb and VRBO properties can be a profitable strategy, but securing financing for these investments comes with unique challenges. Traditional mortgages often aren’t well-suited for vacation rentals – especially if the borrower is self-employed or lacks steady W-2 income – and many banks hesitate due to the unpredictable rental income. To overcome these hurdles, many U.S.-based investors turn to specialized short-term rental loans that focus on a property’s income potential rather than the borrower’s personal earnings. This guide provides an in-depth look at the loan types available to STR investors in 2025, their requirements, pros and cons, and how to choose the best financing option for your short-term rental business.
What Are Short-Term Rental (STR) Loans?
Short-term rental loans refer to financing products designed for properties rented on a nightly or weekly basis (such as vacation homes or Airbnb rentals). These loans differ from conventional home mortgages in that they prioritize the property’s projected rental income and market appeal over the borrower’s personal income. In practice, an STR loan underwriter will assess whether the property itself can generate enough cash flow to cover loan payments. This approach is useful for investors who might not qualify for a traditional loan because their personal income is irregular or already tied up in other investments.
In 2025, interest rates remain higher than the ultra-low levels of a few years ago. Conventional investment property mortgage rates typically range from about 6.5% to 8.5% for fixed-rate loans, reflecting tighter lending conditions. Short-term rental loans often carry slightly higher rates (often roughly 0.5–1% above standard residential loan rates) due to the higher risk profile of vacation rentals. Despite the cost, these specialized loans offer flexibility in qualifying based on rental income, enabling investors to finance properties that wouldn’t qualify under traditional rules.
Common Loan Options for Short-Term Rental Financing
STR investors have several financing options to consider. The right choice depends on your financial profile, experience, and investment strategy. Below are the most common loan types available for short-term rental properties, along with their features and how they fit different investor needs:
Conventional Investment Mortgages (Traditional Loans)
Conventional loans are standard mortgages offered by banks or credit unions, often backed by Fannie Mae or Freddie Mac guidelines. These loans have the advantage of relatively low interest rates and long terms (15 or 30 years), but they come with strict qualification criteria based on personal income and credit. Lenders typically require a strong financial profile – for example, at least 20% down payment and sufficient personal income to cover the new loan plus any existing mortgages. All personal finances are thoroughly evaluated (credit score, tax returns, W-2s, debt-to-income ratio, etc.), since the bank needs to ensure you can afford the mortgage alongside your own housing costs.
One major limitation is that many conventional lenders do not count short-term rental income when underwriting the loan. In other words, if you plan to rent the property on Airbnb, the projected rental earnings often won’t be considered as qualifying income. This makes it harder to qualify for multiple STR properties using back-to-back conventional loans, unless your personal salary is high enough to carry all the mortgages. Conventional loans are best suited if the property will double as a second home or if you have ample personal income and want the lowest possible interest rate. They are less ideal for scaling a large STR portfolio due to the income and debt limits imposed by lenders.
Debt-Service Coverage Ratio (DSCR) Loans
DSCR loans have become one of the most popular financing tools for short-term rental investors. DSCR stands for Debt-Service Coverage Ratio, which is the ratio of a property’s income to its debt payments. Unlike conventional mortgages, DSCR loans do not require personal income verification or employment history. Instead, the lender looks at the property’s cash flow – if the expected rental income is sufficient to cover the mortgage (typically at least 1.25× the monthly payment), the loan can be approved. This means you won’t need to provide tax returns or W-2 forms to qualify; even self-employed or high debt-to-income borrowers can be approved if the property is a strong earner.
DSCR loans are commercial-purpose loans for investment properties only, not for primary residences or second homes. They often come with 30-year fixed terms (no balloon payments) and can be made to an LLC or corporate entity instead of an individual, which many investors prefer for liability reasons. Most DSCR lenders require a minimum DSCR of around 1.2–1.3 (e.g. $1.25 of income for every $1 of mortgage payment) and a down payment of 20–25%, similar to other investment loans. Credit score minimums typically start around 620, though a higher score will get you better rates and terms.
The big advantage of DSCR financing is flexibility and speed. Because they bypass the usual personal underwriting, DSCR loans are often easier and faster to obtain than conventional mortgages. Investors who can’t qualify for a bank loan (due to self-employment, multiple mortgages, or high debt-to-income) often still qualify for a DSCR loan based on the property’s cash flow. These loans also enable rapid portfolio growth – you can finance one property after another as long as each rental’s income supports its own loan. However, interest rates for DSCR loans are generally higher than conventional rates (reflecting the higher risk to the lender), and some DSCR loans may include prepayment penalties or slightly higher closing costs. Overall, DSCR loans have opened the door for many STR investors to scale their businesses when traditional financing isn’t feasible.
Portfolio Loans (Blanket Loans)
Portfolio loans (also known as blanket loans) allow an investor to finance multiple properties under a single loan or credit facility. Instead of having separate mortgages for each rental home, you might have one larger loan that covers, say, 5 vacation cabins or a mix of rental units. This can simplify management (one payment instead of five) and sometimes lower overall costs if structured well. Portfolio lenders (often specialized commercial lenders or community banks) look at the combined income and value of the entire portfolio. These loans are useful for experienced investors expanding their holdings, as they enable acquiring or refinancing several properties at once.
In a portfolio loan, the risk for the lender is higher, so the terms are usually less favorable than a standard single-property loan. Interest rates tend to be a bit higher than DSCR or conventional loans, and the lender may require substantial equity across the portfolio (e.g. a blanket loan might not exceed 70–75% of the total portfolio value). There may also be cross-collateralization – all properties serve as collateral for each other, meaning if you default on one, you risk losing the whole group. Portfolio loans can be an excellent tool for scaling up a short-term rental business, but they come with complexity. Investors should carefully weigh the convenience of one loan against the potential downsides of tying properties together and paying a premium in interest.
Hard Money and Bridge Loans
Hard money loans are short-term, asset-based loans provided by private lenders or investor funds. They are typically used when speed or flexibility is paramount – for example, to close a deal quickly or finance a property that needs significant renovation. Unlike bank loans, hard money lenders base their decision almost entirely on the property’s value and potential, with much less emphasis on the borrower’s credit or income. This makes hard money financing an option for borrowers with lower credit or those who need a fast closing that traditional lenders can’t accommodate.
For short-term rental investors, a hard money loan might be useful to acquire a property that is not yet rental-ready (e.g. needs rehab or is missing a rental history). You could use the hard money funds to purchase and fix up the home, then refinance into a DSCR or conventional loan after the property is generating steady STR income. Hard money and bridge loans (a similar concept, used to “bridge” a financing gap) usually have short terms of 6 to 24 months and carry high interest rates in exchange for their flexibility. In 2025, hard money rates often start around 9–10% and can go up to ~15% depending on the deal’s risk profile. Down payments for hard money loans can range widely (often 10–30% or more) and lenders might also charge upfront points (fees) on the loan.
Because of the cost, hard money is best used as a temporary solution. An investor should have a clear exit strategy, such as refinancing with a conventional/DSCR loan or selling the property, before the short-term loan comes due. Pros of hard money loans include very fast funding (sometimes in a matter of days) and lenient qualification (property-centric underwriting). Cons include much higher borrowing costs and the need to refinance quickly to avoid those high rates long-term. Hard money can be a lifesaver for snagging a hot STR property or bridging a financing gap, but it’s not a permanent financing solution for an STR business.
Home Equity Loans and HELOCs
If you already own a home (or another investment property) with substantial equity, you can tap into that equity to fund a new short-term rental purchase. There are two main ways to do this: a home equity loan or a Home Equity Line of Credit (HELOC). A home equity loan is often called a second mortgage – it allows you to borrow a lump sum, secured by the equity in your property, which you repay over time (typically 5–20 year term, fixed interest). A HELOC, on the other hand, works more like a revolving credit line: the lender gives you a credit limit (say $100,000) and you can draw funds as needed, pay them back, and draw again during a set draw period. HELOCs usually have variable interest rates.
For STR investors, using home equity can be a smart way to raise a down payment or even purchase a property outright. HELOC funds can be used for your short-term rental investment whenever needed. The advantage is that you’re leveraging existing property wealth, often at an interest rate lower than hard money or personal loans. However, you are putting your primary home (or whichever property the equity comes from) at risk, since it’s the collateral for the loan. Lenders will typically allow you to borrow up to 75–80% of your home’s value minus any existing mortgage. For example, if your home is worth $400K and you owe $200K, you might get a home equity loan or HELOC for up to around $100K of that available equity.
Keep in mind that taking on a second loan increases your monthly obligations. Qualifying for a home equity loan/HELOC requires good credit and sufficient income to handle the payments. Some investors use a HELOC strategically as a down payment source – they draw from a HELOC for 20% down, then finance the rest with a DSCR or conventional loan. This can work, but essentially you’ve created a highly leveraged position (100% financing split across two loans), which carries significant risk if the rentals don’t perform as expected.
