Securing the right financing can make or break your STR investment. The loan you choose affects your cash flow, flexibility, and ability to scale. This guide covers every major financing option available to STR investors in 2025.
Loan Types Overview
Not all lenders understand short-term rentals. Many traditional banks still view STRs with skepticism. Here are your main options:
| Loan Type | Best For | Typical Rate | Down Payment |
|---|---|---|---|
| Conventional | Primary/second homes, strong W-2 income | 6.5-7.5% | 10-25% |
| DSCR | Investment properties, self-employed | 7.5-9% | 20-25% |
| Portfolio | Unique situations, local bank relationships | 7-8.5% | 20-30% |
| Hard Money | Quick closes, BRRRR strategy | 10-14% | 20-30% |
Conventional Loans
Conventional mortgages offer the best rates but come with restrictions for STR properties.
Primary Residence
- Lowest rates and down payments (3-5% possible)
- Must live there for at least one year
- Can rent out rooms or the property when traveling
- House hacking strategy: live in one unit, STR the others
Second Home
- 10-15% down payment typically
- Must be in a vacation/resort area
- Can rent when you're not using it
- Some lenders restrict rental days (check terms carefully)
Misrepresenting a property as a primary residence or second home when it's purely an investment is mortgage fraud. Be honest with your lender about your intentions.
Investment Property (Conventional)
- 20-25% down payment required
- Slightly higher rates than primary residence
- Lenders may count 75% of projected rental income
- Strict DTI (debt-to-income) requirements
DSCR Loans: The STR Investor's Friend
Debt Service Coverage Ratio (DSCR) loans qualify based on the property's income potential, not your personal income. This makes them ideal for:
- Self-employed borrowers with complex tax returns
- Investors who already own multiple properties
- High-income earners with high DTI ratios
- Scaling a portfolio beyond conventional loan limits
How DSCR Works
DSCR = Net Operating Income / Annual Debt Service
Most lenders require DSCR of 1.0-1.25 minimum (income covers 100-125% of mortgage payment).
DSCR Pros & Cons
| Pros | Cons |
|---|---|
| No personal income verification | Higher interest rates (1-2% more) |
| Close in LLC or personal name | Larger down payment (20-25%) |
| No limit on number of properties | May require appraisal with rental analysis |
| Faster underwriting (2-3 weeks) | Prepayment penalties common |
Other Financing Options
Portfolio Lenders
Local banks and credit unions that hold loans on their own books (don't sell to Fannie/Freddie). They have flexibility to create custom terms but may charge slightly higher rates.
Hard Money / Bridge Loans
Short-term loans (6-24 months) with high rates but fast closings. Best for:
- Properties needing renovation before refinancing
- BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat)
- Auction purchases requiring cash-like speed
Seller Financing
The seller acts as the bank. Rare but powerful when available - can negotiate custom terms, lower down payments, and avoid traditional underwriting.
Home Equity (HELOC/Cash-Out Refi)
Use equity from your primary residence to fund STR purchases. Lower rates than investment property loans since it's secured by your home.
Tips for Qualifying
Qualification Checklist
- Credit score 680+ (700+ for best rates)
- 6+ months of reserves (mortgage payments in savings)
- Stable income history (2 years for W-2, 2-3 for self-employed)
- DTI under 43% for conventional (not required for DSCR)
- Down payment sourced and seasoned (60-90 days in account)
- Clean title and appraisal on the property
Required Documents
Gather these before applying to speed up the process:
- Income verification: 2 years W-2s, tax returns, pay stubs (or none for DSCR)
- Asset documentation: 2-3 months bank statements, investment accounts
- Property documents: Purchase contract, property insurance quote
- Rental projections: AirDNA report, comparable listings analysis
- Entity documents: LLC operating agreement if purchasing in entity name
Get pre-approved with 2-3 lenders before house hunting. This gives you negotiating power and helps you understand your true budget.