What Are the Options for Financing a Vacation Rental Property?

Vacation rental properties have seen their demand skyrocket in recent years, with sites such as Airbnb and Vrbo offering short-term rentals more than ever before. Tourists are turning to vacation rentals more frequently than hotels for their privacy, home atmosphere, and flexibility. This increased demand is a highly profitable opportunity—not only for investors, but for mortgage brokers, private lenders, and referral partners who can match clients with the proper vacation rental financing options.

If you're a third-party originator seeking to diversify your products, facilitating your customer's vacation property financing can be a game-changer. Whether you're dealing with seasoned or first-time investors in the short-term rental industry, knowing the top vacation rental loan products will make you a go-to financing expert.

In this blog, we'll take you through the different vacation home loans, what lenders take into account, and how you, as a mortgage broker or referral partner, can use these financing options to expand your business.

Traditional Financing for Vacation Rental Properties

For clients with good credit and steady income, conventional vacation property loans can be the first line of inquiry. Conventional loans have some of the best interest rates available in the market, which makes them appealing to borrowers.

These loans, however, have stringent underwriting standards. As a mortgage broker or private lender, here's what you need to make sure your clients qualify:

• Credit Score Requirements: Most lenders look for a minimum credit score of 680, but higher scores (700+) secure the best rates. 
• Debt-to-Income Ratio (DTI): Many lenders require a DTI below 45%, meaning the borrower’s total monthly debts should not exceed 45% of their income.
• Higher Down Payments: Unlike primary residences, second homes and vacation rentals require at least a 20-30% down payment.
• Cash Reserves: Borrowers may need to show six months of mortgage payments in reserves, depending on the lender.

Why Brokers Should Offer Traditional Vacation Property Loans

If your client is eligible for a conventional mortgage, it is usually the best deal. But a lot of real estate investors—particularly those growing their portfolio—won't meet these tight qualifications. That's where alternative vacation rental financing can help.

Asset-Based Loans: A Smarter Alternative for Investors

As a mortgage broker or private lender, you’ll often work with real estate investors who don’t fit the conventional mortgage mold. Asset-based loans (also known as DSCR loans) provide a faster, more flexible option for financing rental property purchases.

How Do Asset-Based Loans Work?

As opposed to conventional loans, which rely on personal earnings, asset-based loans depend on the potential rental yield of the property. Lenders analyze the Debt Service Coverage Ratio (DSCR), which relates the rental income of the property to its mortgage.

• No Personal Income Requirements – Great for self-employed investors.
• Faster Closing Process – Approvals often take weeks, not months.
• Easier Qualification – As long as the rental income covers the mortgage, borrowers can qualify.

Why This Matters for Brokers & Referral Partners

By providing vacation rental loans on a property income basis, you have the opportunity for more clients—including full-time real estate investors who might not be able to make it through typical DTI standards. That means more deals for you and larger commissions.

Cash-Out Refinance: Unlocking Equity for Vacation Rentals

A cash-out refinance is another useful mortgage broker tool for clients who want to finance a vacation rental property. If your client has a home with high equity, they can refinance their mortgage for more money and use the excess funds to invest in a vacation home loan.

Key Benefits for Brokers & Clients:

• Lower Interest Rates Compared to Hard Money Loans

• Longer Loan Terms for More Flexibility

• Clients Can Access Large Sums of Cash

Since interest rates fluctuate, this strategy works best when rates remain relatively low. As a trusted broker or lender, advising your clients on timing can help them secure the best terms.

HELOC: A Flexible Financing Option

For clients who prefer not to refinance their original mortgage, a Home Equity Line of Credit (HELOC) can be a vacation property funding alternative. The revolving line of credit enables homeowners to borrow from the equity of their home like a credit card.

Why Brokers Should Offer HELOCs:

• No Need to Refinance – Clients keep their original mortgage terms.
• Lower Interest Rates Than Personal Loans or Credit Cards
• Flexible Borrowing – Funds can be accessed as needed, making it ideal for renovations or short-term investment needs.

By offering HELOCs, you are offering an alternative solution for customers who wish to invest in vacation rental properties without having to restructure their existing mortgage.

Helping Your Clients Get Approved for a Vacation Rental Loan

As a referral partner or mortgage broker, your job is to walk clients through vacation rental financing approval. Here's how you can set them up for success:

• Encourage Credit Score Improvements: A 720+ credit score secures the best rates.
• Help Lower DTI Ratios: If their DTI exceeds 45%, suggest paying down some debts before applying.
• Prepare for Higher Down Payments: Educate clients about 20-30% down payment requirements.
• Advise on Cash Reserves: Many lenders require at least 6 months of reserves.

By actively educating your clients on these variables, you improve their chances of approval—resulting in more closed transactions and higher commissions for yourself.

Why Mortgage Brokers Should Partner with RCN Capital

If you are a mortgage broker, private lender, or referral partner, providing vacation rental loans can be a great way to grow your business. At RCN Capital, we offer short-term and long-term investment property loans that are specifically intended to make it easy for your clients to finance vacation properties.

Our Broker-Friendly Loan Programs Include:

• 24-Month Short-Term Loans – Ideal for clients flipping or stabilizing a property.
• DSCR-Based Vacation Rental Loans – Perfect for full-time investors.
• Cash-Out Refinance & HELOC Options – Helping clients leverage existing equity.
• Flexible Loan Terms & Quick Closings – Faster approvals mean more commissions for you.

Join Our Broker Program Today!

We at RCN Capital appreciate our third-party originators and offer you the tools and assistance necessary to build your business. Whether a mortgage broker, private lender, or referral partner, our loan programs assist you in closing more transactions while bringing your clients leading-edge financing solutions.

Ready to begin making more with vacation rental loans? Get in touch with RCN Capital today and see how our broker-friendly programs will enable you to grow your business in 2025 and beyond!

Final Thoughts

With the booming vacation rental market, there’s never been a better time for mortgage brokers and private lenders to expand their financing options. Whether your clients need a traditional loan, DSCR loan, cash-out refinance, or HELOC, offering the right vacation rental financing solutions will set you apart as a go-to expert.

RCN Capital

The best way to save on a real estate investment is to obtain financing from a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate professionals. If you are looking to finance investment projects, RCN Capital has competitive loan options and an award-winning broker referral program available to partners. Connect with us today to learn how our lending solutions can help you grow your business.