Non-QM Underwriting Guideline Updates - Short Term Rental Requirements

Short Term Rentals

Short term rental (STR) properties are investment properties rented for periods of less than 30 days, typically through property management services like AirBNB, Vacation rental by owner (Vrbo), and/or independent property managers. Short term rental properties may not be modified in a way that affects the residential character of the property. For example, parking lots and reception areas are not acceptable.

Short term rental income from the subject property must be documented with the following:

1. The appraiser’s estimate of monthly short term rental income. The appraiser’s analysis must include a minimum of three comparable STR properties and account for both seasonality and area occupancy rates. The appraiser's analysis may be completed on FNMA Form 1007 Comparable Rent Schedule, a form provided by the AMC, or a separate narrative addendum within the appraisal.

And

2. CMS will obtain an AirDNA Rentalizer report. The AirDNA Rentalizer must contain at least three comparable STR properties within the same zip code, an occupancy rate ≥ 50%, and a market or submarket score ≥ 60.

Note: If tax returns are in the file and reveal less income than calculated above for the subject property, the underwriter must justify using a higher STR rental estimate, such as the property being recently acquired, out of service for an extended period, tax returns reflecting high one-time expenses, etc.

LTV Limits for Short Term Rental Properties

Short term rentals are limited to the lower of the matrix LTVs or:

• 70% LTV for purchase and rate/term refinance transactions
• 65% LTV for cash out refinance transactions75% LTV when a 12-month history of rents are documented using printouts from the subject’s property management service

Short-term rents will be reduced by 20% to account for additional expenses associated with these types of properties. Qualifying rental income will be the lowest of:

• 80% of the appraiser’s rent estimate,
• 80% of the AirDNA gross rents,
• 80% of the documented actual rents from the property management service, when available

Note: If tax returns are in the file and reveal less income than calculated above for the subject property, the underwriter must justify using a higher STR rental estimate, such as the property being recently acquired, out of service for an extended period, tax returns reflecting high one-time expenses, etc.

For investment properties other than the subject, short term rental income must be documented with tax returns.

This section does not prohibit a borrower from occasionally renting out their primary residence or second home on a short-term basis; however, primary residence and second home transactions may not be qualified with rental income.

Short Term Rentals

Short term rental properties may not be modified in a way that affects the residential character of the property. For example, parking lots and reception areas are not acceptable. Examples of short term rentals are Air BNB, Vacation Rental By Owner (VRBO), etc.

Short term rentals of less than one month in term will be qualified as an unleased property unless the borrower is able to demonstrate a 12-month history of rents on the subject property. The borrower may provide documentation from their property management service documenting 12 months gross rents.

Determining the Loan-to-Value - Refer to the Carrington Investor Advantage Program Matrix - Additional LTV Limits chart.

The Debt-Coverage Ratio (DCR) must be calculated using the lesser of the documented rents from the property management service or the appraiser's estimate of market rents.

Short Term Rentals

Short term rental (STR) properties are investment properties rented for periods of less than 30 days, typically through property management services like AirBNB, Vacation rental by owner (Vrbo), and/or independent property managers. Short term rental properties may not be modified in a way that affects the residential character of the property. For example, parking lots and reception areas are not acceptable.

Short term rental properties must be documented with the following:

1. The appraiser’s estimate of monthly short term rental income. The appraiser’s analysis must include a minimum of three comparable STR properties and account for both seasonality and area occupancy rates. The appraiser's analysis may be completed on FNMA Form 1007 Comparable Rent Schedule, a form provided by the AMC, or a separate narrative addendum within the appraisal.

And

2. CMS will obtain an AirDNA Rentalizer report. The AirDNA Rentalizer must contain at least three comparable STR properties within the same zip code, an occupancy rate ≥ 50%, and a market or submarket score ≥ 60.

LTV Limits for Short Term Rental Properties

Short-term rentals are limited to the following LTVs:

• 70% LTV for purchase and rate/term refinance transactions
• 65% LTV for cash out refinance transactions
• 75% LTV when a 12-month history of rents are documented using printouts from the subject’s property management service.

Short-term rents will be reduced by 20% to account for additional expenses associated with these types of properties. Qualifying rental income will be the lowest of 80% of the appraiser’s rent estimate, 80% of the AirDNA gross rents, or 80% of the documented actual rents from the property management service, when available. See also Debt Service Coverage Ratio (DSCR).

Debt Service Coverage Ratio (DSCR)

The DSCR calculation for short term rental properties is as follows:

            Debt Service Coverage Ratio = [Short Term Rental Income * 80%] / Proposed PITIA

Short Term Rental Income must be reduced by 20% to account for additional expenses associated with short-term rental properties.

To calculate income for short term rental properties, use the lowest of:

• 80% of the appraiser’s rent estimate, or
• 80% of the AirDNA gross rents, or
• 80% of the documented actual rents from the property management service, when provided