The Hospitable Hosts’ Guide to DSCR Loans: Expert Insights from Visio Lending’s CEO

Airbnb investment is a great way to generate passive rental income, but with high starting costs, it's not easy to start with owner financing alone. The solution is to obtain the right investment property loan, which will allow you to finance a short-term rental property with a smaller upfront cost.
In this episode of our Hospitable Hosts podcast, our special guest is Jeff Ball, the CEO of Visio Lending, one of the leading companies in rental home financing, helping investors in the US grow their rental portfolios. Chatting with Miles, Jeff shares insights into Debt-Service Cover Ratio (DSCR) loans, which allow you to qualify for an investment property with rental income instead of your personal finances.
Press play now to learn how DSCR loans differ from conventional loans, their common terms, down payment requirements, advantages for investors, and how to qualify.
If you prefer to read the highlights, we've got a summary of the key takeaways below.
What Are DSCR Loans?
Jeff explains that Visio Lending was one of the pioneers of DSCR loans in 2016. They had been working with small investors nationwide, many of whom focused on flipping properties. However, many investors also needed financing for single-family rental properties.
"So, could we design a product that looked much more like a commercial loan on a residential property? It's a loan that focuses very much on the property-level cash flow rather than the borrower's personal income. And so that's much more how a commercial loan works," Jeff explains.
Jeff points out that a DSCR loan meets the needs of investors who want to build a portfolio of single-family rental properties. "We focus on the property-level cash flow. So, we match the rent from the property to the principal interest taxes and insurance association dues. And when we underwrite the loan, we look at the borrower's credit. Again, we look at this DSCR calculation. We look at the loan-to-value ratio, and we also look at cash reserves."
Jeff emphasizes that they don't ask for people's pay stubs and tax returns. DSCR loans are designed for professional real estate investors who own many rental properties. DSCR loans allow investors "to grow their portfolio of properties without it being attached to how much personal income they are generating from a nine to five job."
If you own multiple STR properties, managing bookings, cleanings, and communication with guests requires much time and effort. So, a smarter approach is to automate your routine operations using vacation rental software like Hospitable.
Your entire STR business in one convenient platform
Start today with a 14-day free trial.
Common Terms and Down Payment Requirements
Jeff explains that everything they finance is on a 30-year term, fully amortizing. "We also offer an interest-only option, but everything amortizes over a full 30-year term," he adds. "In terms of rates and fees, today, they're quite comparable to what you would have been able to get on what we refer to as an agency loan. So think of a Fannie Freddie loan, very similar to what you would use to buy your own home."
Jeff further explains that the maximum loan value on purchases is 80%, which means you must bring a 20 % down payment. He also highlights that with DSCR loans, investors can finance their properties in a legal entity. "On an agency loan, you can't do that. And so that's something we certainly encourage small investors to hold their properties in an LLC or a corporation because it's good risk management," Jeff clarifies.
Jeff also highlights that DSCR loans have prepayment penalties. "That's designed because it's expensive to originate these loans. And so if somebody like us originates a loan and the borrower pays it off six months later, we don't recoup the cost of actually originating a loan," he explains.
Things to Consider Before Applying for a DSCR Loan
Jeff recommends everyone new to short-term rentals be thoughtful about choosing an investment property, considering its location and size. Make sure the property can generate sufficient cash flow consistently over the year so that you can make the monthly payments.
Jeff also points out that the type of insurance you use for short-term rental properties differs from your homeowner's insurance. So, it is important to have the appropriate casualty and property insurance for the property and incremental liability insurance.
Tune in to the full episode of the Hospitable Hosts podcast to discover how DSCR loans work and why you should consider them if you need financing to buy an investment property.
Over 100 pages of focused knowledge to help you launch and scale your short-term rental business.
