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Short-Term Rental (Airbnb) Income for Mortgages

Short-term rental (Airbnb) income for mortgages refers to the use of revenue from short-term guest rentals to qualify for a mortgage loan. Lenders treat STR income with greater skepticism than long-term rental income due to seasonality, regulatory risk, and documentation complexity, and the available financing options vary from restricted agency conforming loans to more flexible DSCR products.

Key Takeaways

  • Fannie Mae and Freddie Mac may not allow STR income for qualification unless the property has a documented history of at least one to two years of STR earnings on tax returns .
  • DSCR lenders are the most flexible option for STR-income-based qualification, with some accepting projected STR revenue using third-party market data.
  • Lenders apply conservative occupancy assumptions (often 50-65%) and may use the lower of long-term market rent or STR income for qualification .
  • Tax return net income from STR properties is often much lower than gross booking revenue due to aggressive expense deductions, and lenders use the net figure.
  • Seasonality creates cash flow volatility that requires borrowers to maintain sufficient reserves to cover payments during off-peak months.
  • Local STR regulations are evolving rapidly and represent a material risk to the income stream that secures the loan.
  • Specialized STR insurance is typically required by lenders and platform-provided coverage alone may not satisfy lender requirements.

How It Works

How Agency Lenders Evaluate STR Income

When a borrower applying for a conventional conforming loan reports STR income, the lender follows a process similar to evaluating any rental income but with additional scrutiny. The lender requests two years of federal tax returns and identifies the STR income on Schedule E or Schedule C. If the income appears on Schedule C (indicating the borrower operates the STR as a business rather than a passive rental), the lender may treat it as self-employment income, which triggers additional documentation requirements such as a year-to-date profit and loss statement. The lender averages the net income from the two most recent tax years. If the income is declining year over year, the lender uses the lower year. If the income has less than two years of history, the lender may not be able to use it at all under agency guidelines, or may use only one year if the income is stable or increasing and the property has been rented for at least 12 months . Depreciation is added back to the net income for qualification purposes, consistent with standard rental income treatment.

How DSCR Lenders Evaluate STR Income

DSCR lenders take a property-focused approach to STR income evaluation. The process typically begins with the lender obtaining either actual income documentation (trailing 12-month booking platform statements and bank statements) or projected income data (third-party STR market analysis from services such as AirDNA). For actual income, the lender calculates the trailing 12-month gross revenue, subtracts platform fees and any management expenses the lender deems applicable, and arrives at a net operating income figure. For projected income, the lender uses the estimated average daily rate (ADR) and estimated occupancy rate for comparable STR properties in the market, calculates projected annual gross revenue, and applies a standardized expense ratio (often 25-35% of gross revenue) to arrive at projected net income . The net income is then divided by the monthly mortgage payment (PITIA) to produce the DSCR. If the DSCR meets the lender’s minimum threshold (typically 1.0 to 1.25 for STR properties), the loan can proceed.

Documentation Gathering and Verification

Regardless of the loan program, borrowers seeking to use STR income for qualification should prepare a comprehensive documentation package. This includes downloading annual and monthly income summaries from each booking platform (Airbnb, Vrbo, Booking.com, or others), gathering 12-24 months of bank statements showing deposits that correspond to platform payouts, preparing or obtaining occupancy rate data showing the percentage of available nights that were booked during each month, compiling the two most recent years of federal tax returns with all schedules, and preparing a profit and loss statement if the lender requires it. Borrowers who use property management companies should also gather the management company’s monthly or annual reports showing gross bookings, management fees, and net disbursements to the owner. The more thorough and consistent the documentation, the more likely the lender will be able to use the STR income for qualification.

Calculating Effective STR Income for Underwriting

The effective STR income used for underwriting depends on several adjustments applied to the gross revenue. Starting with gross booking revenue (the total amount charged to guests), the following deductions are typically applied: platform fees (usually 3-5% for hosts on Airbnb, or a higher percentage on other platforms), cleaning costs (if paid by the host rather than charged separately to guests), property management fees (typically 15-30% of gross revenue for full-service STR managers), supplies and consumables, utilities above what a long-term tenant would pay, and STR-specific insurance premiums. The remaining figure is the net operating income available to service the mortgage. Lenders may apply their own standardized expense ratio rather than accepting the borrower’s actual expenses, particularly for projected income scenarios. Borrowers should understand which expense methodology their lender uses and prepare their documentation accordingly.

Platform Diversification and Income Stability

Lenders view income concentration on a single booking platform as an additional risk factor. A property that generates 100% of its STR income through Airbnb is vulnerable to platform-specific risks, including algorithm changes that reduce the listing’s visibility, account suspension, policy changes affecting host payouts, or platform fee increases. Diversifying across multiple platforms (Airbnb, Vrbo, Booking.com, direct booking through a property website) reduces this concentration risk and may improve the lender’s assessment of income stability. Some DSCR lenders specifically ask about platform diversification as part of their underwriting process and may view single-platform dependence as a negative factor.

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Key Factors

Factors relevant to Short-Term Rental (Airbnb) Income for Mortgages
Factor Description Typical Range
Income Documentation History The length and consistency of the borrower's documented STR income history on tax returns and platform statements 2 years preferred for agency loans; 12 months minimum for many DSCR lenders
Occupancy Rate Assumptions The occupancy percentage applied by the lender to calculate income, which may be more conservative than actual occupancy 50-65% for projected STR income on DSCR loans; actual occupancy for documented income
Long-Term Rent vs. STR Revenue The relationship between the appraiser's long-term market rent estimate and the actual or projected STR income Lenders may use the lower of the two; STR revenue often exceeds long-term rent by 50-150% in strong markets
Local Regulatory Environment Whether the jurisdiction permits STR activity and the stability of the regulatory framework Ranges from fully permissive to outright prohibition; unstable markets may reduce lender willingness
Seasonality Profile The degree of seasonal variation in the property's STR income and its impact on cash flow consistency Highly seasonal markets may see 50-70% of annual income concentrated in 3-4 months

Examples

Conventional Loan Using Two Years of STR Tax Return Income

Scenario: A borrower owns a beach property that has been operated as a short-term rental for three years. The borrower's Schedule E shows net rental income (after expenses but before depreciation add-back) of $28,000 in year one and $32,000 in year two. Depreciation of $8,000 per year is added back. The lender averages the two years: ($28,000 + $8,000 + $32,000 + $8,000) / 2 = $38,000 per year, or $3,167 per month. The borrower is refinancing the property.
Outcome: The lender uses $3,167 per month as the qualifying rental income from the property. This is compared to the monthly mortgage payment on the refinance. If the payment is $2,800, the property contributes a net positive of $367 per month to the borrower's qualifying income. The two-year documented history on tax returns satisfies the agency requirement for rental income documentation. The gross booking revenue was actually $72,000 per year, but the lender uses the net tax return figure plus depreciation add-back, not the gross.

DSCR Loan Using Projected STR Revenue on a New Purchase

Scenario: An investor is purchasing a mountain cabin in a popular vacation area for $425,000 with 25% down. The property has no STR history because the seller used it as a personal vacation home. The investor plans to operate it as an Airbnb. The DSCR lender orders a third-party STR revenue projection from AirDNA, which estimates an average daily rate of $225 and an annual occupancy rate of 58%. The lender applies a 65% occupancy rate (its own conservative assumption rather than the 58% projection) and a 30% expense ratio.
Outcome: Projected gross revenue: $225 x 365 x 0.65 = $53,381. After 30% expense ratio: $53,381 x 0.70 = $37,367 per year, or $3,114 per month. The monthly mortgage payment (PITIA) is $2,600. The DSCR is $3,114 / $2,600 = 1.20. This meets the lender's minimum DSCR of 1.15 for STR properties. The loan is approved at a rate approximately 1.5% higher than a comparable conventional investment property rate, reflecting the STR risk premium.

STR Property Where Lender Defaults to Long-Term Market Rent

Scenario: A borrower applies for a conventional cash-out refinance on a condo in a resort town. The property has been operated as an Airbnb for 10 months (less than one year). The gross STR revenue over those 10 months was $45,000. However, because the income history is less than one year, the lender cannot use the STR income under agency guidelines. The appraiser estimates the long-term market rent at $1,800 per month.
Outcome: The lender uses $1,800 per month as the rental income, applies a 25% vacancy factor, and counts $1,350 per month as qualifying rental income. The actual STR income averaged $4,500 per month over the 10 months of operation, but the lender cannot use this figure because the documentation history is insufficient under conventional guidelines. The borrower qualifies based on the $1,350 figure, but the qualification capacity is significantly less than what the STR income would support. If the borrower needs the higher income to qualify, a DSCR loan would be the alternative.

Common Mistakes to Avoid

  • Assuming gross STR booking revenue will be used for qualification

    Lenders use net income, not gross revenue. Platform fees, cleaning costs, management fees, supplies, utilities, and other operating expenses are deducted from gross revenue before the lender calculates qualifying income. For tax-return-based qualification, the net figure on Schedule E or Schedule C (plus depreciation add-back) is the qualifying amount. Borrowers who plan their purchase around gross revenue will find their actual qualifying income is significantly lower.

  • Purchasing an STR property expecting to qualify based on projected income with a conventional loan

    Fannie Mae and Freddie Mac generally do not allow projected STR income for qualification on properties without a documented history of STR earnings . A borrower purchasing a property with the intention of converting it to an Airbnb will likely need to qualify based on the long-term market rent or their personal income, not the projected STR revenue. DSCR loans are the appropriate product for projected STR income scenarios.

  • Failing to account for local STR regulations before purchasing

    A property purchased with the expectation of STR income may become worthless as an STR investment if the local government bans or restricts short-term rentals. Borrowers should research the jurisdiction's current STR regulations, pending legislation, and enforcement history before purchasing. A DSCR loan qualified on STR income may become non-performing if the income stream is eliminated by regulatory action, and the borrower would need to cover the mortgage from personal funds or refinance based on long-term rental income.

  • Relying on Airbnb Host Protection Insurance to satisfy lender insurance requirements

    Platform-provided insurance coverage is generally not sufficient to meet lender requirements. Airbnb's Host Protection Insurance has specific exclusions, coverage limits, and conditions that may leave gaps in coverage for events that a lender's required policy must cover. Borrowers should obtain a standalone STR insurance policy or a commercial insurance policy that specifically covers short-term rental activity, guest liability, and loss of rental income .

Documents You May Need

  • Two years of federal tax returns with Schedule E or Schedule C showing STR income
  • Trailing 12-24 months of income statements from booking platforms (Airbnb, Vrbo, Booking.com)
  • Bank statements (12-24 months) showing deposits corresponding to STR platform payouts
  • Occupancy and revenue reports from booking platforms showing monthly occupancy rates and average nightly rates
  • Third-party STR revenue projection (AirDNA, Mashvisor, or comparable) if using projected income for DSCR qualification
  • STR insurance policy documentation showing coverage for short-term rental activity

Frequently Asked Questions

Can I use projected Airbnb income to qualify for a conventional mortgage?
Generally, no. Fannie Mae and Freddie Mac require documented rental income history, typically supported by one to two years of tax returns. Projected STR income from a property that has not been operated as a short-term rental is not eligible for qualification under agency guidelines . If you need to qualify based on projected STR income, a DSCR loan is the appropriate product, as some DSCR lenders accept third-party market projections for qualification.
How do lenders handle the seasonality of STR income?
Lenders use annual average income rather than peak-season income for qualification. If your property earns $8,000 per month in summer and $2,000 per month in winter, the lender uses the annual average of approximately $5,000 per month. This means your qualification capacity reflects the average, not the best months. You should also maintain sufficient cash reserves to cover the mortgage during off-peak months when STR income may be below the payment amount.
What is the difference between using Schedule E and Schedule C for STR income?
Schedule E is used for passive rental income, while Schedule C is used for business income. If you provide substantial services to guests (such as daily cleaning, meals, or concierge services), the IRS may require you to report STR income on Schedule C as self-employment income rather than Schedule E as rental income. The distinction matters for mortgage qualification because Schedule C income may be treated as self-employment income by the lender, which triggers additional documentation requirements and may affect how the income is calculated and averaged.
Will STR income be counted if I just purchased the property?
For conventional conforming loans, newly purchased STR properties without income history will generally not have their STR income counted for qualification. The lender may use the long-term market rent estimated by the appraiser instead. For DSCR loans, some lenders accept projected STR income based on third-party market data even on new purchases, though the terms (down payment, rate, minimum DSCR) are typically less favorable than for properties with documented income history.
How do local STR regulations affect my ability to get a mortgage?
Lenders, particularly DSCR lenders qualifying based on STR income, evaluate the regulatory environment as part of their underwriting. If the property is in a jurisdiction that prohibits or severely restricts short-term rentals, the lender may not approve a loan based on STR income. If the regulatory environment is uncertain (pending legislation, unenforced restrictions), the lender may apply more conservative underwriting terms or decline the loan. Borrowers should confirm that their property complies with all local STR regulations and obtain any required permits or licenses before applying for financing.
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