How To Get an Airbnb Mortgage?

Today, platforms like Airbnb and Vrbo have introduced a modern and flexible approach to property letting, enabling homeowners to capitalise on short-term stays and property owners to maximise on rental incomes.

If you’re considering entering into the property world by investing into an Airbnb, then you might be wondering: “How can I get a mortgage for an Airbnb?”

Securing an Airbnb mortgage can be slightly different from a traditional mortgage, but the good news is – we’re here to help you with all the ins and outs.

In this article, we explore the different types of mortgages available for Airbnb rentals, how to get the best rates, and the steps you need to take to qualify. Let’s dive in.

What is an Airbnb?

An Airbnb is a short-term rental property. It is an alternative rental set-up to ‘holiday homes’ that allows property owners to rent out their homes, apartments, or other types of accommodation to guests for a short duration.

Due to the short-term nature of an occupant stay, Airbnb rental properties are often popular in holiday destinations, university towns, or areas frequented by business travellers and visitors from out of town.

Because these locations benefit from a steady flow of guests seeking flexible accommodation options, Airbnb’s can provide many opportunities to be a very profitable rental investment.

But how can you get an Airbnb mortgage?

The type of mortgages for Airbnbs will differ from traditional residential mortgages. This is because lenders will consider the property’s potential rental income when assessing affordability.

Moreover, Airbnb properties are often treated as investment properties. As such, lenders will often have stricter lending criteria than their conventional mortgage criteria. This can include higher interest rates, larger deposits, and strict income assessments.

What types of Mortgages are Available on an Airbnb Property?

If becoming an Airbnb owner is on your radar, then it’s important to first understand the different mortgage options that are available. Each mortgage type will have its own advantages and disadvantages, along with the lenders specific eligibility criteria.

For a complete overview of your mortgage options –  tailored to your exact needs and requirements – it is always best practice to consult with a trusted mortgage broker. But to help begin your search, let’s take a look at the three main mortgage types for Airbnbs:

Residential Mortgages

A residential mortgage is most commonly thought of as a traditional mortgage, and is the typical mortgage type that is used to secure a home purchase that you intend to occupy/live in yourself.

As such, an Airbnb residential mortgage can be more complex and difficult to secure. This type of mortgage would only apply if you intend to live in the property and rent out individual rooms, rather than the entire property.

It is important to note that with residential mortgages, lenders will often have restrictions on the number of days and amount of rooms you will be able to let, with some lenders capping the entire rental period at 90 days per year.

The key takeaways:

• These mortgages typically have lower interest rates compared to other mortgages, but lenders will likely have much stricter criteria surrounding short-term letting, especially without an explicit, pre-arranged consent.
• To use a residential mortgage for an Airbnb property, you will need to obtain a consent to let from your chosen lender, especially if you’re planning on letting your property out frequently or for extended periods of time.
• For a standard residential mortgage, lenders will expect the applicant(s) to either live in the property or only let out rooms occasionally.

Buy-to-Let Mortgages

A buy-to-let mortgage is the most common type of mortgage to get when looking into purchasing a property for the purpose of renting, and this includes short-term lets like Airbnbs.

With that being said, some buy-to-let lenders will still have their own specific restrictions and criteria that you will need to meet.

In addition, buy-to-let mortgages will often require a larger deposit with higher interest rates. This is due to the perceived risk that is associated with short-term rental properties as the generation of income is dependent on factors outside of the lender’s control, including: tenants needs, destination, and affordability considerations in the future.

The key takeaways:

• When applying for a buy-to-let Airbnb mortgage, you will need to demonstrate the property’s potential to generate rental income. Any application that is supported by a letting agent’s forecast will usually bolster your favour with lenders.
• Some lenders will offer specialised buy-to-let products that are specifically tailored for Airbnb short-term letting. However, these can often have strict lending criteria.
• It’s crucial to discuss your specific needs and requirements with a trusted mortgage broker. Boon Brokers can help you find a lender who understands the nuances of buy-to-let Airbnbs and secure you the best mortgage deal with competitive mortgage rates.

Commercial Mortgages

Commercial mortgages are typically used for those who plan to operate the property as a business. For investors looking to purchase properties with multiple units or those planning to run short-term lettings as a business, commercial mortgages suit your needs.

Most notably, commercial mortgages can often have higher interest rates and larger fees. As such, it is best to consult with a trusted whole-of-market mortgage broker – like Boon Brokers – to ensure that you have access to both popular high-street and specialist lenders alike.

• Commercial mortgages will often allow for more flexibility in regards to the letting structure and tenant types.
• Lenders will require a detailed business plan, income projections, and proof of commercial viability. In addition, commercial mortgages will usually come with higher interest rates and larger fees.
• Commercial mortgages are most common for investors with multiple properties like serviced apartments, hotels, or multiple Airbnb units owned by the same investor.

Eligibility and Qualification Criteria for an Airbnb Mortgage

As we’ve already touched upon, when it comes to eligibility and lending criterias, each lender will have their own specific criteria that you will be required to follow. In addition, the type of mortgage that you decide to secure will affect the required conditions you will need to meet.

With that being said, let’s jump into some of the general factors you will need to consider when applying for a mortgage for an Airbnb property:

• Deposit Size

Most lenders require a deposit of at least 20% of the property’s value, though higher deposits can usually result in more favourable rates and terms.

• Income Documentation

You will be required to provide proof of income, including payslips, tax returns, and bank statements. With a mortgage that is intended for rentals, lenders will usually require/and accept projected rental income estimates into their affordability calculations.

• Credit Score

Having a strong credit score will make lenders look favourably on your application. A credit score of 650 or above is preferable, however, some specialist lenders may accept lower credit scores.

• Property Type

The type of rental property must meet specific criteria, including location, condition, and potential for generating rental income. Lenders will be more likely to loan to properties with a higher rental income projection from high-demand tourist or business areas.

What are the Average Airbnb Mortgage Rates?

The interest rates on an Airbnb mortgage – and indeed on any mortgage type – can vary based on several factors, including: the type of property, credit history, and your chosen lender.

What is important to note is that Airbnb mortgage rates will generally be slightly higher than those for standard residential mortgages. This is because of the associated higher risk for lenders.

Checking an online tool – like the Boon Broker mortgage rates comparison tool – can help provide a more accurate insight into the current mortgage rates. In addition, a free-consultation with our dedicated mortgage advisers will equally provide you with all the information you need about mortgage rates, tailored to your exact needs.

Can I Use Airbnb Income to Qualify for a Mortgage?

The short answer: Yes, many lenders will consider your projected Airbnb income or income from your rentals when assessing your mortgage application.

The long answer: Not every lender will consider your projected income and it can be difficult to secure a mortgage if you’re heavily reliant on projected income from short-term rentals.

As such, lenders will generally require additional proof of income, in addition to rental income, either through bank statements, tax returns, or rental agreements. Additionally, some lenders may only consider a percentage of the projected income in their affordability calculations. This is to account for any potential vacancies or lower-than-expected earnings.

Essentially, lenders will want to ensure that you will be able to meet any agreed repayments on the mortgage loan. Documentation and proof that this can be achieved will bolster your application and make you more favourable to potential lenders.

How to Get the Best Airbnb Mortgage Rates?

Achieving the best Airbnb mortgage rates will depend on a variety of factors, including property type, credit history, and deposit amounts.

Let’s jump into some top tips that can help you secure the best mortgage rates for an Airbnb rental property:

Property Type

The property type and location are of great importance when securing a mortgage for an Airbnb rental. This is for two main reasons:

• The structural integrity
• The projected income generation

Typically, lenders will prefer properties that are of a standard construction (brick with a slate/tile roof). This is because it is considered more structurally sound, and has less risk of any major property defects.

On the other hand, location will be crucial in managing/increasing the potential income. When you buy a property for Airbnb, consider prime locations with a strong demand for short-term lets to maximise your potential income.

In addition to this, some lenders may prefer properties with multiple bedrooms or amenities such as parking, Wi-Fi, or outdoor spaces as they are likely to attract higher rental rates, increasing the overall profitability.

Credit History

Your credit score and credit history will help lenders determine your overall creditworthiness and will play a significant role in the interest rates you will be offered.

It is always best to try and improve your credit rating before applying for any type of mortgage. Making a concerted effort to pay off existing debts, reducing credit card balances, and maintaining a consistent payment history can greatly increase your chances of securing favourable rates.

If you’re an established property owner with a portfolio of properties, lenders may also consider your history of managing other rental properties as proof of reliability for both income generation and financial stability.

Deposit Amount (Loan to Value)

A key factor that will improve the interest rates that are available to you is to have a higher deposit, lowering your overall loan-to-value (LTV) ratio.

The exact deposit amount will depend on your chosen mortgage type and product, however, as a rule-of-thumb:

• Residential mortgages require a minimum of 5%
• Buy-to-let mortgages require a minimum of 20%

While most lenders require a minimum deposit (depending on your mortgage type), offering a larger deposit will likely result in more favourable interest rates and repayment terms. This is due to a lower LTV reducing the overall risk for your chosen lender.

As such, saving for a larger Airbnb deposit can help you access better mortgage deals.

Get Clear Advice from a Mortgage Expert

Securing a mortgage for an Airbnb rental property can be complex, especially with the variety of different mortgage types, products, and lenders that are available.

But don’t worry – we’re here to help you.

At Boon Brokers, we provide fee-free expert advice with absolutely no obligation. Our mortgage advisers understand the intricacies of securing a mortgage for a short-term rental and can provide valuable insights into how to access the best lenders, deals, and rates.

Contact Boon Brokers today and start your Airbnb rental dream with the mortgage that matches your needs.