Can You Airbnb Your Mortgaged Property?Here's Everything you Need to know about Airbnb and Mortgages
The emergence of Airbnb brought a disturbance in the short-term rental market.
It introduced an entirely new yet very successful business model that even affected some large industries.
Players in the short-term rental market had to adjust or they might end up losing their business due to the innovation brought upon by Airbnb.
It won’t be an exaggeration to say that Airbnb took the world by storm (because it became very successful globally).
You’d hear stories about homeowners successfully earning enough money to make their annual mortgage payments in just months through Airbnb.
Some would say that renting out your home through Airbnb might be the ticket to a self-sustaining property.
Makes you want to rent out your home through Airbnb huh?
But wait… can you really rent out your mortgaged property, particularly your mortgaged home, through Airbnb?
And we’re not talking about investment properties here.
We’re talking about your primary home, the one where you live at.
Will your lender allow you to do so?
And if you indeed can, what are the things that you need to keep in mind when it comes to Airbnb and mortgages?
In this article, we will find out if you can Airbnb your mortgaged property, particularly your mortgaged home.
What is Airbnb?
Airbnb is basically an online marketplace where homeowners or real estate property owners can rent out their homes or properties.
People looking for short-term accommodations can then use the Airbnb website or app to book a place to stay.
Prior to Airbnb, travelers are likely to book hotels or other similar businesses for their lodging.
However, with Airbnb, travelers are given another option.
They may even find a place that perfectly suits their preferences (some may even have a kitchen that renters can use).
Airbnb also allows local homeowners to earn some extra cash by renting out their home/s or spare room/s to people who would want to visit the area.
Airbnb will take a cut of the rental fee, but it’s way better than not earning anything at all, right?
In exchange, the host is able to advertise his/her home on a widely-used platform.
In addition to that, they will also receive support from a big and successful company such as the handling of payments.
As of the writing of this article, Airbnb has over 6,000,000 listings covering 100,000 cities and towns spread across over 220 countries worldwide.
There is no denying the success and impact of Airbnb in the short-term rental market.
Can You Airbnb a Mortgaged Property?
The short answer is yes, you can Airbnb a mortgaged property, but there are things you need to keep in mind in doing so.
Firstly, what is the purpose of your mortgage?
If it is to purchase an investment property (e.g. rental property), then things will be relatively simpler.
But if it is to purchase a home where you’ll be primarily living, things will be more complicated.
This is important to keep in mind because an investment property is different from a property that you will use as your primary residence or home.
The issue with using a mortgaged home (primary residence) as Airbnb
For example, you’re already 10 years into your mortgage for your primary residence.
Due to hearing about the news of earning extra money through Airbnb, you decide to list your property on it.
Now, there can be an issue with this. Your lender granted the mortgage under the assumption that you would be using it as your primary residence.
They expect that you’re less likely to default on it because you don’t want to lose the place where you live in.
Thus, they probably gave you lighter terms thinking that the loan is better secured.
However, renting out your home throws all those assumptions out the window.
You’re doing something that isn’t in the original agreement with your lender, which can land you in trouble.
So before you rent out your property through Airbnb or any other platform, you may want to get permission from your lender first.
Now if you’re planning to still live in your home and only rent out a portion of it, your lender (the mortgage company) may not have issues with it.
But if you’re planning to move out of your home so that you could rent it out entirely, then your lender may not want that.
You’re basically converting your primary residence into a rental property, which isn’t the purpose of the mortgage.
A mortgage for a rental or investment property usually has stricter requirements and terms.
The lender might demand you to pay off the entirety of the loan due to a probable breach of contract.
If you continue to pay all of your monthly mortgage payments, the lender will likely never know you are using your residence as an Airbnb, but this is a decision you need to decide for yourself by weighing the pros and cons.
Airbnb a mortgaged investment property
When you purchase a property with the purpose of generating rental income, then that property is an investment property.
Thus, you will need to apply for an investment property mortgage for such a property.
This type of mortgage usually has stricter terms and requirements than a mortgage for a primary residence.
The assumption here is that you’ll be using your earnings from the property to pay off the mortgage.
The thing here is, even if you apply for an investment property mortgage, your lender may still not approve of it if you’re going to use it for short-term rental.
Airbnb is primarily for short-term rentals. Unlike long-term rentals that are fairly secure, short-term rentals are unpredictable.
The potential of earning more short-term rentals is real. However, there comes a risk of not realizing that potential.
Be upfront with your lender
The best course of action here is to be upfront with your lender about your intentions with your mortgage.
Communicate to them that you want to purchase the property so that you can list it on Airbnb.
Work with your lender.
If you’re upfront with your intentions, your lender might be more willing to come up with a mortgage that better suits your needs.
Mortgage Options for an Airbnb Property
Second Home Mortgage
A second home (or vacation home) is ideal for Airbnb hosting.
You’ll likely spend less time living in it than with your primary residence.
Thus, you can rent it out entirely whenever you’re not staying it. You’ll be able to earn rental income that way rather than having the property stay idle.
A second home mortgage might have stricter terms and requirements such as requiring a higher down payment.
However, since it’s your second home, your lender won’t you to live in it full-time.
They’re less likely to care if you want to use it for short-term rental. As long as you’re able to make your mortgage payments on time, there should be no issues.
If you have a lot of equity built up in your primary residence, cash-out refinancing is a great option for you.
You can use the cash from the cash-out refinance to outright purchase a property that you will specifically use for Airbnb hosting.
Since you’re purchasing the property with cash, it won’t have any mortgages attached to it.
Thus, you’re free to do whatever you want with it (and that includes listing it on Airbnb).
The rental income you’ll earn from the property can help in paying off your existing mortgage.
Hard Money Loans
If conventional loans are no longer an option for you, you may want to consider hard money loans.
They are typically less strict as to the purpose of the mortgage. However, they typically have shorter terms than conventional loans.
Additionally, they come with higher fees and interest rates. Hard money lenders also prioritize getting paid on time.
Things to Be Wary About Beyond Your Mortgage
Let’s say that you’re mortgage application for an Airbnb property got approved. Great! What now?
After all, being an Airbnb host is not just about getting your property listed on Airbnb.
Here are some things that you need to be mindful of as an Airbnb host:
An Airbnb property is primarily a short-term rental property.
It will require different property insurance than that of a primary residence or a long-term rental property.
Be sure to get the proper insurance for your property.
Certain insurance providers specialize in insuring short-term rental properties.
They offer insurance that cover damages by guests among other things.
Local Rules and Regulations
Be sure to check if Airbnb is allowed in the city or town where the listed property is located.
Many local government units have actually banned or limited short-term rentals.
If the listed property is such a city or town, then what you’re doing is actually illegal.
Some cities or towns may also require licensing for Airbnb property.
Be sure to check the local rules and regulations of your city or town.
Fees and Taxes
Since you’re earning income from an Airbnb property, you’ll have to account for taxes.
It’s not your primary residence, so there are no tax exemptions for it.
Also, you have to be mindful of your maintenance fees.
People are more likely to rent properties that are well-maintained.
If your property is located in an area that has an HOA or condo association, you may also have to account for HOA dues.
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US News "What Airbnb Means for Your Mortgage" Page 1 . October 19, 2022
Internal Revenue Service "Know the tax facts about renting out residential property" Page 1 . October 19, 2022