Thinking about buying a vacation rental in Ocean City, MD? 🏖️ Whether you’re eyeing your first Airbnb investment or expanding your portfolio, understanding your mortgage financing options is key.
Vacation rentals differ from traditional homes—not just in how they’re managed, but how they’re financed. The good news is there are several ways to fund your next investment, from conventional loans and HELOCs to DSCR loans and private fix-and-flip financing.
In this blog, I'll highlight 5 smart mortgage options that can help you purchase, renovate, or refinance a short-term rental property and choose the best fit for your goals.
A short-term rental property—like those listed on Airbnb or VRBO—is a home, condo, or apartment rented for brief stays, usually from a few nights up to a few months. These rentals cater to vacationers and travelers looking for the comfort of home in popular destinations such as Ocean City, Maryland.
Unlike a long-term rental, which involves a year-long lease and stable monthly income, short-term rentals in Ocean City, MD focus on flexibility and higher nightly rates. They often require more active management—handling bookings, guest communication, and turnovers—but short term rental investing in Ocean City, MD, can generate strong returns with the right properties and plan to secure it.
Thinking about buying a vacation rental? 🏡 This article breaks down seven key mortgage options to help you finance your next Airbnb or beach-town investment.
We’ll walk through how each works, who they’re best for, and how to choose the right option to meet your investment goals.
Conventional loans remain one of the most common and trusted mortgage options for vacation rental buyers. Backed by Fannie Mae and Freddie Mac, these loans are widely offered by banks, credit unions, and private lenders that often create their own investment property programs.
Conventional investment loans can be used to purchase rental properties with 1–4 residential units. Most buyers use them for single-family homes, condos, or townhomes—but they can also be used for duplexes, triplexes, or fourplexes with the right strategy.
Helpful Blog: What is a Multi Family Property? Explained for Beginners
Expect a 15%–25% down payment, depending on your credit, income, and property type.
Lenders evaluate your debt-to-income ratio (DTI) to ensure you can handle both your new mortgage and your existing financial obligations.
Helpful Blog Article: Your Mortgage to Income Ratio (and How it Benefits You!)
If the property already generates rental income, some lenders may allow you to use that income to strengthen your DTI ratio.
However, most conventional lenders don’t count short-term rental income (like Airbnb or VRBO earnings) when qualifying you for the loan. Instead, they’ll base projected income on long-term rental comps, which are typically lower than short-term rental potential.
A Home Equity Line of Credit (HELOC) allows you to access the equity in your primary residence, offering flexible funding that can be used much like cash to purchase investment properties or serve as a down payment across one or more acquisitions. With the appreciation of home values in recent years, a HELOC has become a compelling option for investors aiming to launch or expand their real estate portfolios.
Many lenders permit borrowing up to 80% of your home’s appraised value. If you already have a mortgage, the HELOC is typically structured as a second mortgage, enabling you to leverage your remaining equity to obtain funds for additional property purchases.
Similar to conventional financing, qualifying for a HELOC requires that you meet specific debt-to-income guidelines set by the lender.
Monthly payments are calculated based on the amount you’ve drawn from your HELOC, amortized over a term—often 10, 15, 20, or 30 years. As you pay down the principal, your payment may be adjusted to reflect the lower balance over the remaining loan term. This flexibility can be advantageous as your new investment property begins generating rental income.
A conventional cash-out refinance allows you to refinance your existing mortgage and access the built-up equity in your primary residence. Instead of taking out a separate loan, you replace your current mortgage with a new one for a higher amount, receiving the difference as cash. Those funds can then be used for a down payment on a vacation rental, property upgrades, or other investments.
This option functions much like a Home Equity Line of Credit (HELOC) but provides a lump-sum payout instead of a revolving credit line.
Conventional cash-out refinances are primarily available for your main residence. Most lenders don’t allow cash-out refinancing on second homes or investment properties through traditional conventional programs.
If you want to tap into equity from an investment or vacation rental, consider a DSCR cash-out refinance instead. DSCR loans are specifically designed for investment properties and evaluate the property’s income potential rather than your personal income.
DSCR loans, or Debt Service Coverage Ratio loans, have become increasingly popular among Airbnb and short-term rental investors. Unlike conventional loans that rely heavily on your personal income and employment verification, DSCR loans focus on your property’s ability to generate income—making them ideal for real estate investors who prioritize cash flow and scalability.
A DSCR loan evaluates whether a property’s rental income can cover its own mortgage payment, taxes, and insurance. Many investors view these as a bridge between hard money loans and conventional financing, offering more flexibility and faster approvals—especially for those with a proven track record in short-term rentals.
To qualify, most DSCR lenders require that rental income meets or exceeds 1.25x to 1.5x the monthly housing expenses (including mortgage, taxes, and insurance).
One of the biggest advantages of DSCR loans is that they don’t require traditional debt-to-income (DTI) verification.
Unlike most conventional loans, DSCR lenders allow you to buy property under an LLC, providing valuable asset protection and tax flexibility.
This structure helps investors separate personal and business liabilities—an important advantage for anyone managing multiple Airbnb or vacation rental properties.
Private fix and flip loans are short-term financing options designed for investors looking to purchase, renovate, and improve a property—often to later refinance or sell. While these loans are popular among house flippers, they’ve also become a strategic tool for Airbnb and vacation rental investors who want to bring older homes up to modern short-term rental standards.
In competitive vacation rental markets, buying a property that needs work can create long-term advantages. Renovating allows you to increase property value, attract higher-paying guests, and improve cash flow potential once refinanced into a long-term loan. Having prior renovation or construction experience can also help you qualify and secure better loan terms.
Lenders commonly fund up to 100% of renovation costs, depending on the project’s After Renovation Value (ARV).
Down payments generally range from 10% to 25% of the purchase price. Experienced investors or repeat borrowers may qualify for lower down payment options.
The main advantage of these loans is the ability to boost a property’s value quickly. Once renovations are complete, many investors transition into a DSCR cash-out refinance, using the new equity to:
Private fix and flip loans offer flexibility, speed, and value-building potential—ideal for investors who see opportunity in renovation. To succeed, partner with a trusted real estate agent familiar with your market, and a lender experienced in investment and DSCR financing to plan your path from purchase to profitability.
Owning a vacation rental can be both profitable and rewarding—especially when you choose the right loan to match your investment strategy.
Before you decide, consult a lender experienced in investment properties and a local real estate professional who understands your market. With the right financing plan, your vacation home can become both a great getaway and a strong long-term asset. 🌴💰