HFG Guide to Financing Airbnb Properties
In the last ten years we have seen numerous industries get disrupted by start-up companies and new technologies. The first one that comes to mind is the taxi and transportation industries via Uber and Lyft; or even the Cable business via Netflix, Hulu Prime, etc. Ultimately, the reason why these companies have been so successful is because at the end of the day, consumers are seeing the benefits through savings or even better product/service. One company specifically has given people the opportunity to make extra income using an asset the majority of people have (whether it be through purchase or rental). This company is Airbnb and the asset is your home.
Florida is known for its beautiful year-round weather and pristine beaches, which attract millions of tourists every year. Florida’s GDP surpassed $1 Trillion in 2018 — a figure predominantly fueled by tourism. This is great news for the hospitality industry but it is also great news for Florida residents! Airbnb is a great platform for everyone to diversify their income.
Now, you are probably thinking to yourself, “I would love to buy a property but even if I had enough money for the down payment, I will never be able to obtain financing for an Airbnb property.” Well, I am here to tell you that this is a myth! There are many financing options available with low down payment options and competitive rates and terms. In this article I will go over the main programs Home Financial Group has available to our clients.
1. Conventional Loans A.K.A. Conforming Loans
Yes, these are the plain vanilla loans you see advertised everywhere. These refer to a home mortgage that is eligible for sale and delivery to government sponsored enterprises, such as Fannie Mae and Freddie Mac. They typically feature a 30 year-fixed competitive rate, no Mortgage Insurance options, etc.. What most people don’t know is that in addition to your primary residence, we can finance your second/vacation home and/or investment property through these programs. Who wouldn’t want to have a property close to the beach that you rent out on Airbnb for 6 months (or enough to cover your monthly expenses) and also use it as a vacation spot? That sounds like a great deal to me. How about buying an investment property that, instead of having it on a long-term lease (typically up to 12 months) you are able to maximize your revenue through Airbnb? Lastly, you can always buy a home as your primary residence (up to 4 units); live in one of the units and rent out the other three on Airbnb.
The lowest down payment option available is through the “Home Ready” and “Home Possible” programs, these allow the borrower to buy a home with as little as 3% down (subject to income eligibility requirements), or a 5% down payment option. These are only available if you are buying a home as your primary residence. If you purchase the property as an investment, all you need is as little as 15% down payment.
- Competitive Rates
- Low Down Payment Options
- Full Documentation Required
- Strict Underwriting Guidelines
- Foreign Nationals not Accepted
2. Non – Conforming A.K.A Non- Traditional Programs
Don’t let the name scare you, these programs are amazing! Yes, the rates are traditionally higher than conventional programs and some terms are not as attractive. But they’re a great option if your credit history is not pristine (Recent Bankruptcy or Foreclosure) or if you are self-employed and your taxes don’t reflect your “real” earnings.
The main programs HFG offers under this umbrella are the following:
- Bank Statements – Personal or Business – We analyze the last 12 months (sometimes less) of bank statements and calculate an approximate income based on a given expense ratio
- Property Cash Flow or DSCR (Debt Service Coverage Ratio) – We use the expected net rent of the property and make sure it at least covers the monthly payments associated with the purchase, PITI (Principal, Interest, Taxes and Insurance)
- No Ratio – Meaning we approve the loan based on the borrower’s credit score and down payment. No income needed.
- Asset Depletion – We perform an analysis on our client’s liquid assets and assign a value which in turn will allow us to calculate said client’s monthly income.
- Dynamic Financing Options – Underwriting Guidelines more flexible that conventional loans
- Low Documentation requirements compared to conventional loans
- Traditionally higher rates than conventional programs
- Higher down payment options required than conventional programs
3. Foreign National Loans
Now, especially in South Florida, it’s no secret that many international investors have been buying up Real Estate. Many of these investors have cash but a lot of them don’t or they simply want to take advantage of the low interest rate environment in the U.S. compared to the high interest rate environment in their home countries. Foreign Nationals are limited to a minimum of 30% down payment for a Single-Family Home purchase and a 35% down payment for Condominiums. On that same token, the documentation required for a Foreign National is much less than a domestic client. Please contact us at (insert link to contact page) for more information as to how to obtain financing as a Foreign National.
- Low documentation
- Lower Rates than the Non-Traditional Programs
- Minimum down payment is at least 30%
- Adjustable Rates Only
In all, Home Financial Group is a Dynamic Lender, with multiple programs to offer to all kinds of clients. We pride ourselves in offering a tailor-made solution for each client. Whether it be to buy a home to rent out some rooms on Airbnb or buy a second home/vacation property to use some months of the year and rent the remaining months on Airbnb. If you have any specific questions regarding your dream of homeownership, please contact us here.