With the Income You Need to Buy a Median-Priced Home rising, you may need to Learn About Adjustable Rate Mortgages to preserve affordability.

With the Income You Need to Buy a Median-Priced Home rising, you may need to Learn About Adjustable Rate Mortgages to preserve affordability.

Airbnb Mortgage: Buying an Airbnb Rental Home

upscale-home-in-fallCan you get an Airbnb mortgage? In other words, is it possible to get a mortgage that allows you to buy a home you plan to use to make money through Airbnb guests?

The short answer is yes. It's possible. But, depending on your circumstances, you may face some hurdles. Read on for details.

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Why you might want an Airbnb mortgage

It's not hard to see why you might be tempted to become an Airbnb host. Go to the company's website, and there are some pretty tempting figures for the potential income you might make. Based on the assumption you rent out your entire place to four guests, you might earn:

  • New York, NY -- $4,651 a month
  • San Francisco, CA -- $4,411 a month

OK, we picked places with some of the most expensive real estate in America. So what might you get if you live somewhere less costly? How about:

  • Akron, Ohio (median sales price 2018: $80,100) -- Airbnb income $1,449 a month
  • Brownsville, Texas (median sales price 2018: $85,900) -- Airbnb income $854 a month

Looking those up on Airbnb's site was instructive. Nationwide, you don't automatically get higher incomes where homes are more expensive. So make sure you do your research on your locality before spending too much time planning your purchase.

Related: How to Get a Mortgage for Investment Property

Some possible non-mortgage barriers to becoming a host

OK, let's get some risks out the way before we get on with exploring your Airbnb mortgage choices. The last thing you want is to be committed to finding a big monthly payment for something you can't rent out.

The first risk is legal. Some (but far from all) condo and homeowners associations (HOA) ban renting. And some cities have similar restrictions. Sometimes, these are targeted at short-term rentals, such as Airbnb offerings. So you need to call the municipality and crawl over your condo or HOA's rule book before you commit to buying somewhere. Don't assume nobody will notice or care if you break the rules. Someone very likely will.

The second risk is an economic one. No doubt, Airbnb is scrupulous about providing accurate figures for hosts' revenues in your city. But they're probably based on historical data. And there's no guarantee they won't change if there's a recession -- or if, say, a major employer or attraction in your city suddenly shuts down. You need to weigh such possibilities.

You also need to remember those figures are averages. You'll be in competition with other properties in your city, and if yours is less attractively located and presented than others, you won't earn close to that average. And that prompts a third risk: It doesn't take many bad reviews to slash your income. You'll need to commit to maintaining the highest standards. And, with so many strangers using the home, that can prove expensive and time-consuming.

There's one other thing to bear in mind. Becoming a host affects your personal taxes. Talk to a professional before making any decisions.

Related: How to Borrow Your Investment Property Down Payment

30 years imprisonment -- not worth it

Most mortgage applications require you to declare that the home you're buying is going to be your primary residence. In other words, it's going to be the place where you live, at least most of the time. Mortgage for rental properties require larger down payments and come with higher fees and interest rates.

If you're buying a property that you plan to use exclusively for rentals (Airbnb or otherwise), and you lie on your form, you'll have committed "occupancy fraud." That's still fraud and as a federal felony can carry a sentence of up to 30 years in prison and a $1 million fine.

Related: 6 Ways to Make Your Vacation Home Pay

Renting with a mortgage

If you declare that the home is going to be your primary residence, it must be that, at least for a decent period. But there's nothing illegal or wrong with your changing your mind later. You're then free to rent out your home -- including as an Airbnb host -- without refinancing.

And, of course, you can apply for any mortgage in the normal way, providing you really will be living in the home. However, lenders won't count any income you hope to make from rentals toward the income you declare on your application. You need to qualify for the mortgage without rental income.

There are a few exceptions to this general ban on counting future rental income. For example, if you're eligible for a VA loan (because you're a veteran, servicemember or otherwise qualify), you are allowed to count future rental income on a duplex, triplex or four-plex, providing you live in one of the units. This would allow you to purchase rental property without a down payment.

Other programs (FHA, Fannie Mae, Freddie Mac) also allow this as long as you live in a unit, with minimum down payments ranging from 3.5% to 5%.

Related: How to Buy and Finance Investment Property

Airbnb mortgage refinance

In a fairly recent move, Airbnb has teamed up with Fannie Mae and three big lenders to provide existing homeowners with a way to refinance their current mortgages. But they must still be using the home as their primary residence. Presumably, they can be renting out rooms, an annex, separate residential unit(s) within the property or something similar.

Under this program, those applying can count their past Airbnb income toward the qualifying income on their application. So they may be able to increase the amount they're able to borrow or get a lower mortgage rate. The Airbnb website has a "Proof of Income" section, so you can just print out your past revenues and send them to your lender.

Related: Guide to Becoming a Successful Landlord

Other Airbnb mortgage choices

There are two other common ways to finance the purchase of a rental property without it being your primary residence:

  1. Investment property loan. Expect to need a 20% or higher down payment, a good credit score and sufficient cash reserves to cover the mortgage for six months. The lender may require your appraiser to provide a "rental schedule" that forecasts the realistic, market value of the rents you may receive
  2. Non-prime loan. These are more flexible but also more expensive. You might need a 25% or higher down payment and be willing to pay a higher interest rate

Neither of these is likely to come with anything close to the sort of interest rate you're used to paying on your own mortgage. That's because default rates are higher for investment property, and lenders need a higher income to offset that risk.

higher interest rates do eat into your rental profits. So get working on your cash flow spreadsheets to be sure your business model can withstand the higher costs.

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