Imagine one of your favorite vacation destinations. Is it by a beach, near the slopes of your favorite ski resort, or in some fabulous city with great places to eat and shop? Can you catch a show or ball game in person? With the increased use of Airbnb and Vrbo, websites that make finding a vacation rental easier and help owners with renting them out, it’s no wonder that we’ve seen a surge in interest around purchasing vacation rentals. Many individuals are looking to purchase vacation rental property by taking out a non QM mortgage, such as a DSCR loan. Using a portfolio mortgage for this purpose is not just happening in the US but is also a worldwide phenomenon.
Why Own a Vacation Property?
One of the allures of owning a vacation property is to be able to use it. But what if you could get someone else to pay for it and maybe even make some money doing it? It’s a very interesting proposition that many investors have jumped on for the past many years. A well-run vacation rental in the right location can often generate a significantly higher revenue than a standard long-term rental. For this reason, it’s very common for a vacation rental to be able to generate more than enough income to cover a mortgage on the home. The thinking then goes, if you aren’t using it, well, why not make some money when you’re not staying there?
Using a Non QM Mortgage to Fund Your Investment Property
Of course, not everyone can afford to purchase an investment property outright. It’s very popular for buyers and owners of these home types to get mortgages to acquire them and keep them. There were few lending options for these home types for the longest time, the most popular being a conventional mortgage. However, those mortgage types can have very rigid rules that make it difficult for some to qualify.
In the past five years, we’ve seen an increase in the popularity of the DSCR program. A DSCR loan is a portfolio mortgage that doesn’t require proof of personal income. Instead, it is more concerned about the potential rent of the property being financed as a basis to qualify the buyer/owner for the mortgage.
The DSCR Loan Is a Preferred Non QM Mortgage
The DSCR loan has become the preferred portfolio mortgage for those looking not just to acquire one vacation rental but really make a business out of investing and managing multiple vacation rentals. In addition to requiring less documentation from the borrower, this non QM mortgage has additional flexibilities, like allowing condotels, gift funds for the down payment, and no rental experience requirements.
Of course, not everyone has the time or desire to own and manage a vacation rental property. For this reason, there are many property management companies that offer their services to simplify things for an investor.
Discuss Your Options With a Portfolio Mortgage Expert
There are many pluses and minuses when it comes to investing in real estate, especially vacation property. We recommend that you talk to your mortgage advisor about a non QM portfolio mortgage or give us a call so we can walk you through the different aspects.