Conventional works as an investment property loan
A vacation rental you'll rent most of the year is an investment property. That means typically 15% down for a single unit, investment pricing and reserves. It is not a second home, no matter how often you plan to visit. See second homes.
The catch: projected Airbnb income usually doesn't count
On a new purchase, conventional generally won't use projected short term rental revenue to qualify you. Documented short term income on your tax returns may count on properties you already own, but for a first vacation rental, you usually have to qualify without the Airbnb income.
The strategy that works: qualify on your own income
If your W2 or other income can carry the payment on its own, without counting any rent, conventional can be the lowest cost way to buy a vacation rental. You get conventional pricing, no prepayment penalty, and a 30 year fixed rate, and the rental income is upside, not a requirement.
When DSCR fits better
Also consider pricing: a DSCR loan with a prepayment penalty can sometimes price better than conventional if you'll hold long term. And if you're a first time investor, conventional is usually easier, since many DSCR lenders limit new investors on short term rentals.
When you need the property's projected short term income to qualify, want to buy in an LLC, have lean tax returns or already own several properties, DSCR is usually the tool. Many DSCR lenders can use market data for projected short term revenue. See DSCR loans and conventional vs DSCR.
Florida specifics
Confirm short term rentals are allowed by zoning and the HOA before you buy. Resort communities in Kissimmee, Four Corners, ChampionsGate and Davenport are built for it. Condo hotels with rental programs generally aren't eligible for conventional financing. And budget for vacation rental insurance, which costs more than a standard landlord policy. See short term rentals.
How I look at a vacation rental deal
I want the deal to work in an average year, not a record one. That means conservative revenue from real comparable homes, every operating cost, from cleaning and management to platform fees and tourist taxes, and a plan for the slow months. Then I decide whether conventional or DSCR finances it more cheaply.
Conventional without the rent
Ryan, a software engineer with strong W2 income, bought a vacation home in a Kissimmee resort community as an investment property. He qualified on his salary alone, with no rental income counted, and got conventional pricing with 20% down. The Airbnb income became pure cash flow.
DSCR when the rent had to carry it
Natalie wanted the same kind of property but needed the projected rent to qualify. A DSCR loan using market short term revenue data worked, at a higher rate, and she closed in her LLC.
Frequently asked questions
Can I buy an Airbnb with a conventional loan?
Yes, as an investment property, usually qualifying without projected short term income.
Does conventional count Airbnb income?
Projected short term income on a purchase generally no. Documented history on your tax returns may count on properties you own.
Is a vacation rental a second home?
Not if you rent it most of the year. Then it's an investment property.
When is DSCR better for a vacation rental?
When you need the projected rent to qualify, want an LLC, or have lean returns.