What type of mortgage do you need for an Airbnb?

Airbnb revolutionised the market for short-term rentals, making letting properties out to holidaymakers easier than ever.

If you want to enter the property rental market, you may need to apply for a loan or other financial assistance. Usually, a mortgage is the most suitable way to invest in a buy-to-let property but what type of mortgage is most suitable in these circumstances? And what factors could impact your chances of financing your Airbnb property?

If you’d like to know more about the type of mortgage you need for an Airbnb property, this article will help you.

 

Mortgages for Airbnb properties

Unless you have the savings to buy a property outright, you’ll probably need a mortgage. However, many lenders stay away from short-term lets, like Airbnb. The reason is that their guest turnover is much higher, which also raises the risk of damage to the property.  

So what are the financing options available today for Airbnb hosts who want to buy an Airbnb property with a mortgage?

 

  • Loan option 1 – The first financing option is suitable for buyers who want to live in the property but host short–term renters. If this is the case, then your best bet is to pursue a traditional mortgage for a primary residence. You will be evaluated against your ability to afford the monthly repayments and your salary, employment type and assets will all be taken into consideration to determine your eligibility for a mortgage.
  • Loan option 2 – The second funding option is an investment property loan. An investment property is a home that won’t serve as your primary residence. You can take out an investment loan if you intend on using the property exclusively for renting. This type of loan requires at least a 20 percent down payment due to them carrying a higher risk of a default on a property that’s not owner-occupied.
  • Loan option 3 – As the third option, you can check out a private loan–often called a “hard money” loan. This is financing offered by a private investor/lender. This is easier to qualify for but you could end up owing more money. Hard money loans typically require a down payment of 25 to 30 percent. Interest rates are in the range of 8 to 10 percent in many markets.
  • Loan option 4 – The fourth choice is an owner-occupied mortgage that allows you to rent out to Airbnb guests. You need to host these short–term rentals for at least a year. This will allow you to build the proof of income you need to report on at least one tax return.

 

What to do before applying

Before pursuing financing for short–term renting, consider several factors that may affect your application:

  • Make sure that renting the property you want to purchase is allowed. Some properties, like condos, have rules that prohibit short–term rentals.
  • Check if you need a short–term rental license. In some cases, you may also require the installation of special safety and fire equipment on the property.
  • Factor in rental fluctuations. Short–term rentals are seasonal so you need to prepare for the months when there will be no renters.
  • Learn how it affects your taxes.

 

The most important factor in securing a mortgage for an Airbnb is whether this property will be your primary residence or not. There is no law against buying a primary residence and converting it to a rental while you are not using it. You can also bring in a roommate to help make the payments on your mortgage. However, there are some instances when you can unwittingly commit what’s called “occupancy fraud.”

This is what happens when you live in the home while also renting out individual rooms. Or when you rent out the entire home when you’re away for an extended period, but still claim the home as your only primary residence.

Most residential mortgage providers in the UK do not allow Airbnb-type lettings without giving prior consent. If you want to rent out your property on Airbnb, most lenders may consider this a breach of your original mortgage conditions.

Keep in mind that residential mortgages are designed for homes that will serve as your primary UK residence. But if you want to make money from your property, you are better off looking for a different financing option.

 

Using a holiday let mortgage for an Airbnb property in the UK

Holiday-let mortgages are a popular option with lenders and are considered the most appropriate form of lending for Airbnb-type lettings as they’re usually rented out on a short-term basis.

Most new holiday let-type mortgages are given to property owners who intend to host through Airbnb. But if you already have a residential mortgage and want to rent out your property as an Airbnb you need to notify your lender.

 

Are Buy-to-let mortgages suitable for Airbnb properties

If you’re looking to buy a property to rent it out, whether on Airbnb or not, a buy to let mortgage (BTL) is the best form of lending for this purpose.

Most lenders consider Airbnb-type lettings for buy to let mortgages although they may request a restriction on the duration the property is available for rent during a calendar year. Some allow up to 90 days, and a few allow up to 16 weeks or six months.

 

Conclusion

Understanding the different types of mortgages available for Airbnb properties can help you find the one to meet your financial situation and needs. As the interest in short-term rentals continues to grow, more mortgage providers now provide financial support for Airbnb properties. If you’d like to know which lenders can offer the most competitive deals for Airbnb hosts, you can work with a qualified advisor. 

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