Industry Spotlight: Host Financial’s Alternative Solution For Vacation Rental Mortgages
Host Financial was born out of the need for alternative financing solutions for the short term rental industry. Many investors have been hindered by conventional lending requirements to qualify for a loan. The main issue being the conservative nature of banks have yet to catch up to the idea of the short term rentals and how to treat that income. Banks are used to predictable and proven income streams in order to qualify for investment property loans; mainly long term rental numbers or the investor's reportable income. Risk-averse as they are, most banks won’t acknowledge income for a property coming from an Airbnb or VRBO booking. No leases = no loan. Personal income not being enough to cover the loan = no loan.
This is where Host comes in. They have built a network of lenders that understand the unique investment class of short term rentals and have helped draft financing programs that address the issue of risk with banks by looking at actual or projected short term rental income to qualify for the loan. No need to look at your W2s, tax returns, or personal debt-to-income ratios to be eligible for an investment property. No leases need to be in place. Qualifying for an investment mortgage loan with Host is now a function of the property’s income, your creditworthiness, and a minimum down payment of 20% to 25%. Easy breezy.
What’s the difference between conventional financing & Host’s program?
Host Financial's program is considered a No-Doc / DSCR program. If that sounds like jibberish - you’re not alone. DSCR stands for Debt-Service-Coverage-Ratio, which is real estate financing jargon for, “can the income the property generates cover the loan payment every month?”. So instead of looking at your personal income streams or bank statements to see if the individual can pay back the loan, they look at the actual (if already running as a short term rental) or projected income (from data sources like AirDND.co, Rentometer, etc.) of the property to determine that. Eureka!
Also, as mentioned above, leases are not required to be in place at the time of closing the loan. This is a huge difference from traditional financing which requires leases to be in place before the loan will be issued. Basically, they don’t trust the short term rental industry and are covering their butts to ensure they get paid back. What an opportunity they are missing out on because as you and I know when done right, short term rentals often outperform long term rentals by a long shot.
Who can take out loans from this program?
Individuals, Corporations, and LLCs can take out loans from Host’s capital partners.
How big or small do the loans have to be?
Loan sizes range from $50k to $2.5 million but can go higher on a case by case basis.
What states do they lend to?
Host services 40 states and are looking to add more. Inquire with Host to find out if your state is covered.
Are these hard money loans? What type of loan is this?
These are not hard money loans and these are also not conventional owner-occupied loans. Host Financial provides loans that are commercial business purpose investment loans and rates will generally fall between mid 4% to mid/high 6% depending on a borrower’s FICO score, LTV, term length, and income of the property.
How long is the loan repayment?
All loans are on a 30 year amortization period with 5/1 ARM, 7/1 ARM, and 30-year fixed rate options available. No balloon payments and interest-only options are also available in certain scenarios.
How many loans am I allowed to take out?
Since each deal is primarily qualified by the income of the asset, as long as you meet the credit score requirements, and can afford the down payment then theoretically as many as you want. This is a great option for investors looking to scale beyond just a few properties.
What is the average closing time frame?
Host Financial can typically turn around a preliminary term sheet with 24-48hrs. From there, once the terms have been accepted, closing can occur within 3-4 weeks.
What type of properties does Host lend on?
Almost all properties types including Single Family Residential, 1-4 units, Condos, Townhomes and even Multi-Family (5+ units) properties. Host cannot do non-warrentable condos suchs as condo-hotels at the moment but it is something they are working on adding to our loan programs.
Does Host offer any other types of financing?
In addition to Short Term Rental financing, Host provides financing for traditional Long Term Rentals as well as Renovation/Construction/Fix & Flip financing for investors that are either looking to build a new property, or rehab an existing property. Host is able to pair the Renovation/Construction/Fix & Flip financing with either the permanent Short Term Rental or Long Term Rental financing as a take out loan once the construction or renovations are complete. Host can underwrite both loans at the same time so you know the total financing cost of the project before making a decision to proceed.
Want to learn more about Host Financial? Visit their website at www.HostFinancial.com to get more information and apply for a quote to expand your rental portfolio.
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