Investing in short-term rental properties, particularly Airbnbs, has become a lucrative strategy for real estate investors. Nashville, Tennessee, with its thriving tourism industry and vibrant music scene, presents an excellent opportunity for Airbnb investments. However, financing these properties can be challenging, especially for investors who may not meet traditional lending criteria. This is where Debt Service Coverage Ratio (DSCR) loans come into play.

What Is a DSCR Loan and How Does It Work for Airbnb Investments?

A DSCR loan is a type of real estate financing that evaluates a property’s income potential rather than the borrower’s personal income. Unlike conventional loans, which require proof of employment and income verification, DSCR loans focus on whether the rental income from the property can cover the mortgage payments.

How DSCR Is Calculated

The Debt Service Coverage Ratio (DSCR) is calculated using the following formula:

For example, if your Airbnb property generates $60,000 annually and your mortgage payments total $48,000 per year, your DSCR would be:

Most lenders require a minimum DSCR of 1.25, meaning the property must generate at least 25% more income than its debt obligations.

Why Nashville Is a Prime Market for Airbnb Investments

Nashville is one of the hottest short-term rental markets in the U.S. due to several factors:

• Booming Tourism Industry – Over 15 million visitors come to Nashville annually, driving demand for short-term rentals.
• Music and Entertainment Hub – Events like CMA Fest and concerts at the Grand Ole Opry attract travelers year-round.
• Business and Convention Travel – Nashville hosts numerous conferences and corporate events, increasing Airbnb occupancy rates.
• Limited Hotel Availability – Many visitors prefer the unique experience of staying in an Airbnb over traditional hotels.

Benefits of Using a DSCR Loan for a Nashville Airbnb

Opting for a DSCR loan to finance your Airbnb investment in Nashville offers several advantages:

• No Personal Income Verification – Ideal for self-employed investors or those with fluctuating income.
• Faster Approval Process – Streamlined underwriting compared to conventional loans.
• Flexible Loan Terms – Options for interest-only payments or 30-year fixed-rate loans.
• Repeatable Financing – Investors can use DSCR loans to scale their rental portfolio.

Key Factors Lenders Consider for DSCR Loans

Lenders assess several factors when approving DSCR loans for Airbnb properties:

1. Property’s Income Potential – Lenders analyze actual rental income or market-based projections from platforms like AirDNA.
2. Minimum DSCR Requirement – Typically 1.25 or higher for short-term rentals.
3. Credit Score – A minimum of 660 is preferred, though some lenders accept 640 with conditions.
4. Down Payment – Expect to put down 20–30% of the property’s purchase price.
5. Occupancy History – Some lenders require at least 6–12 months of rental history.
6. Property Management – In tourist-heavy markets, lenders may require professional management.

Step-by-Step Guide to Getting a DSCR Loan for an Airbnb in Nashville

Step 1: Research Nashville’s Airbnb Market

Before applying for a DSCR loan, analyze the local short-term rental market. Use tools like AirDNA to estimate occupancy rates and revenue potential.

Step 2: Find a DSCR-Friendly Lender

Not all lenders offer DSCR loans. Look for investor-friendly lenders specializing in short-term rental financing in Nashville.

Step 3: Prepare Required Documentation

Gather essential documents, including:

• Property income statements (Airbnb revenue reports)
• Projected rental income (from AirDNA or appraiser rent schedules)
• Credit report
• Down payment proof

Step 4: Calculate Your DSCR

Ensure your property meets the lender’s minimum DSCR requirement (typically 1.25 or higher).

Step 5: Submit Your Loan Application

Work with your lender to complete the application process. Expect underwriting to take 2–4 weeks.

Step 6: Close on Your Loan

Once approved, finalize the loan terms and close on your Airbnb investment.

Common Mistakes to Avoid When Applying for a DSCR Loan

• Underestimating Expenses – Ensure you account for property taxes, insurance, and maintenance costs.
• Ignoring Local Regulations – Nashville has strict short-term rental permit requirements—check zoning laws before purchasing.
• Choosing the Wrong Lender – Work with a lender experienced in DSCR loans for Airbnb properties.

Working with a Local Nashville Lender for Your DSCR Loan Needs

Choosing a local lender offers several advantages:

• Market Expertise – Local lenders understand Nashville’s Airbnb regulations and rental trends.
• Faster Processing – Streamlined approvals due to familiarity with the market.
• Personalized Service – Direct access to loan officers for tailored financing solutions.

The Future of the Airbnb Market in Nashville and DSCR Loans

Despite concerns about short-term rental regulations, Nashville’s Airbnb market remains strong. Investors who navigate zoning laws and secure DSCR financing can capitalize on the city’s growing tourism industry.

FAQs About DSCR Loans and Airbnb Investing in Nashville

Can I Get a DSCR Loan Without a Primary Residence?

Yes, DSCR loans do not require borrowers to own a primary residence.

Do DSCR Loans Appear on My Credit Report?

If closed in a personal name, DSCR loans may appear on your credit report. Loans closed under an LLC typically do not.

What Happens If My Airbnb Income Drops?

Lenders assess projected rental income, but a low DSCR could impact refinancing options.

Are DSCR Loans Available for Multi-Unit Properties?

Yes, DSCR loans can finance single-family homes, duplexes, and multi-unit Airbnb properties.

How Do I Find the Best DSCR Loan Lender in Nashville?

Look for lenders specializing in short-term rental financing with competitive rates and flexible terms.

Final Thoughts

Securing a DSCR loan for an Airbnb in Nashville is a strategic way to finance short-term rental investments without relying on personal income. By understanding DSCR requirements, lender expectations, and Nashville’s Airbnb market, investors can confidently grow their rental portfolio.

Shop Rates
Mortgage lender in Nashville, Tennessee
3511 Gallatin Pike Suite 317
Nashville TN 37216
https://shoprates.com/
Phone: 888-396-7284 
Hours: 8am -7pm CT Mon.-Sat

Ready to explore your DSCR loan options? Contact a Nashville-based lender today to get started!