Can You Use Short-Term Rental Income to Refinance?

Being an Airbnb host or VRBO host is no longer abnormal. In fact, it is the new normal for many property owners.  When you are a host with such a service, there are some hidden benefits beyond their platform that you might have never known about.

Now, the income from your short-term rental can be used if you’re looking to qualify for a refinance of your second home and/or rental properties. We also go over the ways a couple of the major home rental platforms work.

Using Short-Term Rental Income To Refinance

Short-term rental income has posed a challenge in the past when it came to using it for mortgage qualification because you don’t have a lease agreement. That’s changed with services like Airbnb, HomeAway®, and VRBO™ because they keep a record of each time your property is rented out. Now, all major conventional mortgage investors accept this short-term rental income.  Their recording keeping has helped more property owners get the favorable financing they deserve!

As a good entrepreneur, the more you can document, the better.  Recordkeeping is not only paramount for taxes, but it is also for financing as well!  In order to qualify for short-term rental income, records like the payout history and income or host report are necessary. You will need records for at least the last year, but having 2 years’ worth of records is helpful.

If you’re using short-term rental income to qualify, up to the last 2 years worth of tax returns will be helpful in terms of documentation. The returns should include Schedule C or E, depending on how the income is reported.  There is always a balance between reporting income and deductions.  Be sure you are able to leverage the income you make.  Not every write-off is a good write-off. Having the ability to refinance and solid financial records are worth more than just maximizing a deduction.

The major conventional mortgage investors — Fannie Mae and Freddie Mac — have different requirements, but below are some things you should expect.

You may need a certain number of months worth of mortgage payments so you can show that you’ll be able to cover your mortgage payment in the event of a short-term loss of income or another event that adversely impacts your finances (COVID-19). If you click on the link to the left, you will see a report that Forbes did on the effect of COVID-19 and Airbnb properties.  Why is this important? If Forbes knows it, banks know it.  Your business will be held to a different standard.  Documentation, financial reserves are your friends.

The requirements vary, but 2 months with the principal payment, interest, property taxes, homeowners insurance, and homeowners association dues (if applicable) is a good starting point.

You can refinance primary properties with up to four units as well as second homes. Depending on the investor in the mortgage, you may need to have a certain amount of existing equity, but one of our Home Loan Experts will help you find the right option for you.