Every once in a while, you’ve got to leave the nest and fly free to parts unknown. When you get out of town, it’s awesome to be able to make a little bit of extra money by renting out your home when you’re not using it.
Now, the income from your short-term rental can be used if you’re looking to qualify for a refinance of either your primary residence or your second home. We also go over the ways a couple of the major home rental platforms work.
Using Short-Term Rental Income To Refinance
Short-term rental income has posed a challenge in the past when it came to using it for mortgage qualification because you don’t have a lease agreement. That’s changed with services like Airbnb, HomeAway® and Vrbo™ because they keep a record of each time your property is rented out. Now, all major conventional mortgage investors accept this short-term rental income.
In order to qualify for short-term rental income, records like the payout history and income or host report are necessary. You will need records for at least the last year, but having 2 years’ worth of records is helpful.
If you’re using short-term rental income to qualify, up to the last 2 years’ worth of tax returns can also be helpful in terms of documentation. The returns should include Schedule C or E, depending on how the income is reported.
The major conventional mortgage investors Fannie Mae and Freddie Mac have different requirements, but below are some things you should expect.
You may need a certain number of months’ worth of mortgage payments so you can show that you’ll be able to cover your mortgage payment in the event of a short-term loss of income or another event that adversely impacts your finances. The requirements vary, but 2 months with the principal payment, interest, property taxes, homeowners insurance and homeowners association dues (if applicable) is a good starting point.
You can refinance primary properties with up to four units as well as second homes. Depending on the investor in the mortgage, you may need to have a certain amount of existing equity, but one of our Home Loan Experts will help you find the right option for you.
Depending on the investor in your mortgage, income is qualified differently. If the investor is Fannie Mae and your income from the property has increased or stayed the same in the last 2 years, they take the average monthly rental income. If your income has declined, they take the average monthly income of the most recent year. Freddie Mac always takes the most recent year regardless. Your Home Loan Expert will help you find the best option.
Which Rental Service Is Right For You?
Airbnb, HomeAway® and Vrbo™ are all very much the same and very different. For starters, HomeAway® and Vrbo™ are under the same ownership and operate the same service under separate brands.
There are other players in the space, but these are the services most people are familiar with. They both allow you to charge whatever you want including extras for any hospitality services and cleaning. The listing is also free. That said, there are differences, so let’s break those down.
Airbnb
Airbnb allows you to rent a single room all the way up to your whole house. It’s free to list your property, and Airbnb takes a host service fee which is usually around 3%. If you have a discount for people who booked for a week or a month, this can impact your payout along with taxes in certain areas.
One big plus with Airbnb is the fact that they insure you for both $1 million in property damage protection and $1 million in liability protection against accidents. Additionally, Airbnb requires each guest to provide their full name, email address, phone number, payment information and even an introductory message. They also must agree to your house rules.
Vrbo™And HomeAway®
Both HomeAway® and Vrbo™ operate with identical service terms. They do work slightly differently than Airbnb and offer a couple of different options.
First, unlike their competitors, if you list on these platforms, you have to list your entire house. However, this is one of the things that attracts people to the service, so you may be able to find more guests because of it.
You have some options in terms of the fee structure. If you choose to be charged on a per booking basis, the commission is 5% for the service. However, there’s also the option to be charged a flat subscription fee of $499 per year. The option that makes sense for you will depend on how much you charge and the number of bookings you receive. HomeAway®and Vrbo™ say that if you rent your place for more than 6 weeks per year, that’s usually the point where a subscription makes more sense.
It doesn’t come free, but you can buy property protection insurance. While it isn’t required of guests to request a booking, both HomeAway®and Vrbo™ will show you which travelers have had their identities verified through the service during a previous booking. If you accept the booking of any traveler, they’re asked to provide personal information including their physical address and birthday. They can’t book until the service confirms all requested information is accurate. Once they book, you get basic contact information including their email address and phone number so you can get a hold of them if necessary during the stay.
If you’re interested in refinancing your primary or vacation home by qualifying with money earned from short-term rental, you can get started online with Rocket Mortgage® by Quicken Loans® or give one of our Home Loan Experts a call at (800) 785-4788. If you have questions, you can leave them for us in the comments below.
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