How to Finance a Short-Term Rental: A Guide for Investors
Buying a short-term rental can be a great way to make money, but getting a loan isn’t always simple. Banks don’t treat these properties the same as regular homes, and that can leave you scratching your head. The good news is, if you know what lenders are looking for and the types of loans available, you can make it work. This guide walks you through your options and shares tips to make the process smoother.
Understanding Short-Term Rental Financing
Loans for short-term rentals aren’t like your standard mortgage. Lenders care more about how much income the property can generate than how big your paycheck is. That means even if your personal finances aren’t perfect, a property in a hot location with strong rental demand can still get approved.
Not all lenders handle STRs the same way. Some treat them like regular mortgages, which can be a headache, while others specialize in STR loans and focus on cash flow, occupancy, and market demand. Knowing this upfront will save you time and frustration.
Types of Financing Options for STRs
Here’s the real deal on how people fund short-term rentals:
Debt Service Coverage Ratio (DSCR) Loans
DSCR loans evaluate the property’s rental income rather than your personal income. Lenders usually want the income to cover at least 125% of the mortgage. This is a strong option if your personal income doesn’t meet conventional loan standards.
Conventional Mortgages
These are traditional home loans. They typically offer lower interest rates but require good credit and a larger down payment.
Hard Money Loans
Short-term, high-interest loans that are easier and faster to obtain. They’re ideal for quick purchases or fix-and-flip projects, but they’re more expensive.
Bridge Loans
Bridge loans provide temporary funding to secure a property while you arrange long-term financing. They’re particularly useful in competitive markets.
Cash-Out Refinancing
If you own other properties, you can tap into their equity to fund a new STR. This strategy can be cost-effective, but it increases your overall debt.
Specialized STR Loans
Some lenders offer loans designed specifically for short-term rentals, considering occupancy rates, platform performance, and local rules. These loans often provide the most flexibility for STR investors.
What Lenders Want to See
Here’s what typically matters:
- Credit Score: Usually 620+, but higher helps.
- Down Payment: 15%–25%, depending on the loan.
- Rental Income Proof: Show the property can generate steady cash flow.
- Cash Reserves: A few months of mortgage payments in the bank.
- Location: Tourist areas or spots with low vacancy rates.
- Legal Compliance:The property must follow local STR laws.
Comparing Loan Terms
Don’t just grab the first loan. Check these:
- Interest Rates: STR loans can be higher than regular mortgages.
- Loan-to-Value (LTV): Usually 75%–85%.
- Repayment Terms: Shorter terms save interest but increase monthly payments.
- Fees & Closing Costs: Can be 2%–5% of the loan. Always ask for a breakdown.
- Prepayment Penalties: Some loans charge if you pay early.
| Loan Type | Typical Down Payment | Interest Rate | LTV Ratio | Best For |
| DSCR Loan | 15–25% | 5–7% | 75–85% | Rental income-based buyers |
| Conventional | 20-25% | 4-6% | 80% | First-time buyers with solid credit |
| Hard Money | 25–35% | 8–12% | 65–75% | Fast acquisitions or rehab projects |
| Bridge Loan | 20–30% | 6–10% | 70–80% | Temporary funding in competitive markets |
| Cash-Out Refi | Varies | 4–7% | 70–80% | Use equity from other properties |
Why Bridge Loans Stand Out
When you’re investing in a short-term rental, speed and flexibility are everything. Properties in high-demand areas don’t sit on the market for long, and traditional financing often can’t keep up. That’s where bridge loans shine.
Here’s why many STR investors prefer them:
- Faster approvals – Close in days, not weeks.
- Less red tape – Focuses on the property’s value, not endless personal financial details.
- Perfect for repositioning – Ideal if you’re buying, renovating, or converting a home into an STR.
- Smooth transition – Once the property is stabilized, you can easily refinance into a long-term loan.
In other words, bridge loans help you act like a cash buyer by giving you an edge in a market where timing can make or break a deal.
Strategies for Securing STR Financing
Getting approved and securing good terms requires preparation:
- Get Pre-Approved: Shows sellers you’re serious and ready to act.
- Find the Right Lender: Choose one familiar with STR investments; they understand cash flow and risks better.
- Put Together a Strong Application: Include detailed rental projections, credit history, and property information.
- Ask for Professional Help: Brokers and financial advisors can guide you through paperwork and loan selection.
- Use Online Tools: Comparison platforms help you evaluate rates and terms quickly.
Risks and Considerations in STR Financing
Short-term rentals can be profitable, but there are risks:
- Market Volatility: Changes in the economy can reduce occupancy rates.
- Regulatory Changes: Cities may impose new rules that limit STR operations.
- Property Management Challenges: High turnover, maintenance, and unexpected repairs can reduce profits.
- Financing Risks: Rising interest rates, prepayment penalties, and stricter lending criteria can affect your strategy.
Mitigation Tips: Maintain cash reserves, monitor local regulations, diversify properties, and work with experienced property managers.
Running Your STR Smoothly
Even with a loan, operations matter:
- Choose the Right Location: High-demand areas with strong tourism make financing easier and increase occupancy.
- Track Occupancy Trends: Seasonal fluctuations affect income—plan accordingly to maintain realistic DSCR numbers.
- Stay Compliant: Keep up with local STR regulations to avoid fines and interruptions.
- Maintain a Financial Cushion: Set aside funds for repairs, vacancies, or unexpected expenses to keep your investment stable.
Conclusion
Financing a short-term rental isn’t impossible, but it takes some work. Know your loan options, understand what lenders want, and plan for risks. Check the location, track occupancy, and keep some cash on hand. Do your homework, maybe get a pro’s advice, and your STR can become a solid income source and an investment that grows over time.
If you’re done wasting time with lenders who don’t deliver, it’s time to make smarter connections. RTI Bridge Loans helps investors match with verified, active lenders that actually fund deals. Apply once, get real matches, and close faster. Contact us today at l (562) 857-2285 to get started.
Ready to Get Started?
At RTI Bridge Loans, we specialize in helping investors move fast. Our flexible bridge financing options are built for short-term rental investors who want to close quickly, maximize cash flow, and stay competitive in today’s market.
Call (562) 857-2285 to get pre-approved and start your STR investment with confidence.
Frequently Asked Questions (FAQs)
1. What credit score do I need?
Most lenders want 620+, but higher usually gets better terms.
2. Can I use an LLC?
Yes. Many lenders do loans for business entities. It gives liability protection and tax perks..
3. How is a DSCR loan different?
DSCR loans look at the property’s income, not your paycheck. Conventional loans focus on personal income.
4. How much down payment do I need?
Usually 15%–25%, depending on lender and loan type.
5. Are there tax perks for STRs?
Yes. You can deduct mortgage interest, depreciate property, or use 1031 exchanges.
