Most rental cabins in Gatlinburg, Pigeon Forge and Sevierville are financed in one of two ways: a conventional mortgage that examines your personal finances, or a DSCR loan that examines the cabin’s. For investors with several properties, self-employment income or a full conventional quota, the DSCR loan is usually the one that works.
The ratio
DSCR means debt service coverage ratio. Divide the monthly rent by the monthly payment. The payment includes principal, interest, property tax, insurance and any association dues.
| Rent | Payment | DSCR | Result |
|---|---|---|---|
| $6,000 | $4,500 | 1.33 | The cabin earns 33% more than it costs |
| $4,500 | $4,500 | 1.00 | Break-even |
We like to see 1.0 or better. Strong borrowers can qualify under 1.0 with a larger down payment.
How a cabin rented by the night is counted
A cabin on Airbnb or VRBO earns far more than it would on an annual lease, so we do not use long-term rent for it. We use 12 months of actual rental history where it exists, or AirDNA projections, counted at about 70 to 80%. The cabin has to be allowed to operate as a short-term rental at its address.
A cabin with no history, such as a new build or one that was a second home, is underwritten on the projection alone.
What goes into the payment in Sevier County
- Property tax at the 40% commercial assessment ratio that Sevier County applies to short-term rentals that are not the owner’s primary residence
- Insurance written as a short-term rental policy, which costs more than a homeowner’s policy
- Association dues and road fees in resort communities and on private roads
These three items decide more cabin loans than the interest rate does. Get real figures for each before you write an offer.
What we finance
- Rental cabins and chalets, and long-term rentals
- Condos, including non-warrantable condos
- Condotels
- Property owned by LLCs, out-of-state investors and foreign nationals
Leverage is up to 85% loan-to-value on a purchase and up to 80% on a cash-out refinance. The minimum credit score is 600, at up to 70% loan-to-value.
Applying
- Send us the address, the price and the rental history or projection.
- We calculate the ratio and tell you the leverage it supports.
- Provide two months of bank statements and, for an LLC, the entity documents.
- The appraisal is ordered, and the loan closes in about 30 days.
Details and terms are on the DSCR rental loans page.