Last Updated: April 2026
A conventional mortgage is the most common way to finance a rental property. Conventional rental property loans typically have fixed interest rates that are usually slightly higher than primary residence loans. They are available in a variety of terms, with the most common being 30-year and 15-year fixed-rate mortgages and also a variety of adjustable-rate mortgage (ARM) products available. Given their lower rates and longer loan terms, conventional loans for rental properties are usually more conservatively underwritten.
On This Page
- Investment Property Conventional Loan Rates
- What is a Conventional Loan?
- How Conventional Loans Work for Investment Properties
- Eligible Property Types
- Down Payment Requirements by Property Type
- Borrower Requirements
- Find a Conventional Loan Near You
- Investment Property Loan Calculators
- The Fannie Mae 10-Property Limit
- Using Rental Income to Qualify for an FHA Loan
- Pros & Cons of a Conventional Mortgage for a Rental Property
- Important Conventional Loan Terms
- Investment Property Conventional Loan FAQ
🪄 RentalRealEstate Quick Answer
A conventional loan (also called a conforming loan) for a rental property is a mortgage that is not insured or guaranteed by a government agency such as the FHA or VA. These loans are offered by banks and private lenders and follow standard guidelines set by Fannie Mae and Freddie Mac. Conventional loans are the most common way to finance rental property purchases, offering the lowest available interest rates for investment properties (typically 6.50% to 7.00% for a 30-year fixed in 2026) in exchange for more conservative underwriting. They require a minimum 15–25% down payment, a credit score of 620+ (680+ for the best rates), a maximum DTI of 43–45%, and full income documentation. Fannie Mae caps investors at 10 conventionally financed properties.
Investment Property Conventional Loan Rates
Conventional investment property mortgage rates consistently run 0.50% to 0.75% higher than rates for primary residences, reflecting the elevated default risk lenders associate with non-owner-occupied properties. As of April 2026:
| Loan Type | Primary Residence | Investment Property (Est.) |
|---|---|---|
| 30-Year Fixed | 6.04% – 6.26% | 6.54% – 7.00% |
| 15-Year Fixed | 5.58% – 5.62% | 6.08% – 6.40% |
| 5/1 ARM | 5.50% – 5.75% | 6.00% – 6.50% |
| 7/1 ARM | 5.75% – 6.10% | 6.25% – 6.85% |
| 20-Year Fixed | 5.75% – 6.00% | 6.25% – 6.75% |
What is a Conventional Loan?
A conventional loan for a rental property is a mortgage originated by a private lender that is not insured or guaranteed by any government agency — distinguishing it from government-backed products like FHA, VA, and USDA loans. Conventional loans follow standardized underwriting guidelines established by Fannie Mae and Freddie Mac, and when a loan meets their standards it is classified as “conforming” and can be sold on the secondary market.
For rental property investors, conventional loans represent the gold standard of permanent financing. They offer the lowest interest rates for non-owner-occupied properties, up to 30-year terms, fully amortizing payments with no balloon, and no prepayment penalties. The trade-off is stricter qualification: higher down payments (15–25%), credit scores of 680+, full income documentation, and conservative DTI limits. These requirements are why many investors eventually supplement conventional financing with DSCR or portfolio loans as their portfolios grow beyond Fannie Mae’s 10-property limit.
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How Conventional Loans Work for Investment Properties
The conventional loan process for an investment property follows the same general workflow as any residential mortgage — application, underwriting, appraisal, and closing — but with specific differences that reflect the higher risk lenders associate with non-owner-occupied properties. Lenders know that if a borrower faces financial difficulty, they are statistically more likely to prioritize paying the mortgage on their primary home before servicing debt on an investment property. This risk premium manifests in higher down payment requirements, higher interest rates, larger reserve mandates, and more conservative underwriting throughout the process.
When an investor applies for a conventional investment property loan, the lender evaluates three core dimensions: the borrower’s financial strength (credit score, income, DTI, reserves), the property’s investment viability (appraised value, rental income potential, condition), and the overall portfolio risk (number of existing financed properties, aggregate debt exposure, reserve coverage across all properties). All three dimensions must meet Fannie Mae or Freddie Mac’s guidelines for the loan to be approved and purchased on the secondary market.
The underwriting process requires full income documentation — typically two years of federal tax returns (including all schedules), W-2s or 1099s, recent pay stubs, two to three months of bank statements, and current mortgage statements for all existing properties. For self-employed borrowers, the lender analyzes the business tax returns and may require a profit and loss statement and business bank statements. Rental income from existing properties is calculated from Schedule E of the tax returns, with depreciation, mortgage interest, taxes, and insurance added back to determine the net rental income or loss that impacts DTI.
Investment property conventional loans are available as 30-year fixed, 20-year fixed, 15-year fixed, and various ARM configurations (5/1, 7/1, 10/1). The 30-year fixed is by far the most popular choice for buy-and-hold rental investors because it offers the lowest monthly payment, the most predictable long-term cost, and the greatest cash flow stability. There are no prepayment penalties on conventional conforming loans, meaning the borrower can refinance, sell, or pay off the loan at any time without additional cost.
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Eligible Property Types
Conventional conforming loans can finance 1–4 unit residential properties for investment purposes. Unlike FHA and VA loans, conventional loans do not require the borrower to live in the property — the property can be fully tenant-occupied from day one. Eligible property types include: single-family detached homes, single-family attached homes, planned unit developments (PUDs), duplexes (2 units), triplexes (3 units), fourplexes (4 units), and condominiums in Fannie Mae-approved or Freddie Mac-approved projects (including some non-warrantable condos through specific lenders). Properties with five or more units are classified as commercial and require commercial mortgage financing rather than conventional residential loans.
All properties must meet minimum condition standards — while conventional appraisal requirements are less stringent than FHA’s Minimum Property Standards, the property must be habitable, structurally sound, and free from major safety hazards. Properties requiring significant renovation may not pass the appraisal and could require alternative financing (bridge loan, hard money) for acquisition, with a conventional refinance after stabilization.
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Down Payment Requirements by Property Type
Conventional investment property down payment requirements vary based on the number of units and the transaction type. Unlike FHA (3.5%) and VA (0%), conventional loans require significant equity from the borrower — which reduces lender risk but demands more upfront capital from the investor.
| Transaction | 1 Unit | 2 Units | 3–4 Units |
|---|---|---|---|
| Purchase | 15% (some lenders 20%) | 25% | 25% |
| Rate-and-Term Refinance | 25% | 25% | 25% |
| Cash-Out Refinance | 25% (75% LTV max) | 30% (70% LTV max) | 30% (70% LTV max) |
While Fannie Mae technically allows 15% down (85% LTV) on single-unit investment properties, many lenders impose their own overlay of 20% minimum. The 25% down payment for 2–4 unit investment properties is a firm Fannie Mae guideline with no lender variation. For cash-out refinances, the maximum LTV is reduced by an additional 5% for investment properties compared to primary residences, and by another 10% for ARMs.
Borrower Requirements
| Requirement | 1 Unit Investment | 2–4 Unit Investment | 5–10 Financed Properties |
|---|---|---|---|
| Minimum Down Payment | 15% (some lenders 20%) | 25% | 25% |
| Credit Score | 620 minimum (680+ for best rates) | 620 minimum (680+ preferred) | 720 minimum |
| DTI Ratio | 45% maximum (50% with compensating factors) | 45% maximum | 45% maximum |
| Cash Reserves | 6 months PITI for subject + 2 months per additional financed property | 6 months PITI + 2 months per additional | 6 months PITI for subject + 6 months for each additional (up to properties 5–10) |
| Income Documentation | 2 years tax returns, W-2s, pay stubs | Same | Same |
| Rental Income History | Schedule E (2 years) for existing rentals | Same | Same + documented landlord experience |
| Maximum LTV (Purchase) | 85% (some lenders 80%) | 75% | 75% |
| Max LTV (Rate-and-Term Refi) | 75% | 75% | 75% |
| Max LTV (Cash-Out Refi) | 75% (1 unit), 70% (2–4 unit) | 70% | 70% |
| Appraisal | Required (comparable sales-based) | Required (with rental survey) | Required |
| PMI | Not applicable (20%+ down typical) | Not applicable (25% down) | Not applicable |
| Prepayment Penalty | None | None | None |
| Loan Term | 15, 20, or 30 years fixed; ARM options | Same | Same |
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Investment Property Loan Calculators
The Fannie Mae 10-Property Limit
One of the most impactful constraints on conventional investment property lending is Fannie Mae’s limit of 10 financed residential properties per borrower. This count includes the borrower’s primary residence, any second homes, and all investment properties — across all lenders and loan types that report to the credit bureaus. Once a borrower has 10 conventionally financed properties, they cannot obtain additional conventional financing through the Fannie Mae or Freddie Mac system.
Historically, the limit was even more restrictive — prior to 2009, investors were capped at 4 financed properties, which was expanded to 10 under Fannie Mae’s expanded eligibility guidelines. For properties 5–10, the requirements become significantly stricter: a minimum 720 credit score, 25% minimum down payment, 6 months PITI reserves on each investment property, no 30-day-or-greater mortgage late payments in the past 12 months, and no bankruptcies, foreclosures, or short sales in the prior 7 years.
The 10-property limit is the single most common reason experienced investors transition from conventional financing to DSCR loans, portfolio loans, or commercial products for continued portfolio growth. DSCR loans have no property count limit, qualify based on rental income rather than personal income, and support LLC ownership — making them the natural complement to conventional financing once the 10-property cap is reached.
Using Rental Income to Qualify for an FHA Loan
Rental income from existing and proposed investment properties can be used to help the borrower qualify for a conventional loan, but the methodology is specific and often misunderstood.
Existing Rental Properties (Schedule E Method)
For properties the borrower already owns and rents, the lender analyzes two years of Schedule E from the borrower’s federal tax returns. The calculation adds back depreciation, mortgage interest, taxes, insurance, and HOA (non-cash and payment-related deductions) to the reported rental income or loss, then divides by 24 months to determine monthly net rental income. If the result is positive, it is added to the borrower’s qualifying income. If negative, it is added to the borrower’s monthly debt obligations, increasing DTI. This methodology reflects the actual financial performance of the rental portfolio rather than using gross rents.
New Acquisition (Subject Property)
For the property being purchased, the lender uses 75% of the appraiser’s estimated market rent (from the appraisal’s comparable rent analysis) to offset the new property’s PITIA payment. The 25% haircut accounts for projected vacancy, maintenance, and management expenses. If 75% of market rent exceeds the PITIA, the excess is added to qualifying income. If it falls short, the deficit is added to monthly debt, increasing DTI. For properties with existing lease agreements, the lender may use the lesser of the lease amount or 75% of the appraised market rent.
Example Calculation
Rental Income Offset on New Acquisition
Appraised market rent: $2,400/month
75% of market rent: $1,800/month
PITIA on proposed loan: $2,100/month
Net rental offset: $1,800 − $2,100 = −$300/month (added to DTI as additional debt)
In this example, the rental income doesn’t fully cover the proposed payment, so the $300 shortfall counts against the borrower’s DTI. For the deal to work, the borrower’s other income must be sufficient to absorb this deficit while keeping total DTI under 45%.
Pros & Cons of a Conventional Mortgage for a Rental Property
Conventional Loan Pros
- Lowest interest rates: Conventional investment property rates (6.50–7.00%) are lower than DSCR (6.00–8.00%), portfolio (7.00–8.50%), bridge (8–14%), and hard money (10–18%) products — saving thousands over the life of the loan.
- Long-term fixed rates: 30-year fully amortizing fixed-rate options provide the most predictable and stable monthly payment structure available, with no balloon payments or rate adjustment risk.
- No mortgage insurance (20%+ down): Unlike FHA loans (lifetime MIP), conventional loans with 20%+ down carry no ongoing mortgage insurance cost.
- No prepayment penalties: Unlike DSCR and portfolio loans (which commonly include 3–5 year prepayment penalties), conventional loans allow payoff, refinance, or sale at any time without penalty.
- Full investment property eligibility: Unlike FHA and VA (which require owner-occupancy), conventional loans can finance non-owner-occupied investment properties directly — no house-hacking or occupancy requirement.
- Established, predictable process: Conventional lending follows a standardized, well-documented process that borrowers, agents, title companies, and all market participants are familiar with — minimizing surprises and complications.
- PMI auto-cancellation: For loans with less than 20% down, PMI is automatically cancelled at 78% LTV — a significant advantage over FHA’s lifetime MIP.
- Rental income qualification: Projected rental income from the subject property (at 75% of market rent) can offset the mortgage payment when calculating DTI, expanding purchasing power.
Conventional Loan Cons
- 10-property limit: Fannie Mae caps investors at 10 conventional loans across all property types, creating a hard ceiling on portfolio growth through conventional channels.
- Higher down payment: 15–25% down (compared to 3.5% FHA and 0% VA) requires significantly more upfront capital — $50,000–$125,000+ on a typical investment property.
- Stricter credit requirements: While the minimum is 620, competitive pricing requires 720+, and properties 5–10 require 720 minimum. Borrowers with credit issues face substantially worse terms or denial.
- Full income documentation: Two years of tax returns, W-2s, pay stubs, and bank statements create a heavy documentation burden, particularly for self-employed investors whose tax returns may not reflect their actual financial strength.
- DTI constraints: The 43–45% maximum DTI can be difficult to meet for investors carrying multiple mortgages, especially when existing rental properties show paper losses (from depreciation) on Schedule E.
- No LLC ownership: Conventional loans require the property to be held in the borrower’s personal name — not in an LLC, corporation, or trust. Investors who want entity-based asset protection must transfer to an LLC after closing, which technically risks triggering the due-on-sale clause.
- Escalating reserve requirements: For borrowers with 5–10 properties, the aggregate reserve requirement can reach $100,000+ in liquid assets, tying up significant capital.
- LLPA investment surcharges: Fannie Mae’s loan-level price adjustments add 1.5–4.0%+ to the effective cost of investment property loans compared to primary residence loans, partially offsetting the headline rate advantage.
- Appraisal dependency: If the property doesn’t appraise at or above the purchase price, the borrower must bring additional cash to closing or renegotiate the price — and investor properties in markets with limited comparable sales can face appraisal challenges.
Important Conventional Loan Terms
Essential Investment Property Conventional Loan Terms
Conforming Loan — A mortgage that meets the guidelines established by Fannie Mae or Freddie Mac, including maximum loan amount (conforming loan limit), borrower qualification standards, and property requirements. Conforming loans can be purchased by the GSEs on the secondary market, which is why they offer the most competitive interest rates. Loans that exceed the conforming limit are classified as “jumbo” or “non-conforming” and typically carry higher rates and stricter requirements.
Loan-to-Value Ratio (LTV) — The ratio of the loan amount to the property’s appraised value, expressed as a percentage. For investment property conventional loans, Fannie Mae allows a maximum LTV of 85% for single-family (15% down), 75% for 2–4 unit properties (25% down), and 75% for cash-out refinances on single-unit investment properties. Lower LTV (larger down payment) generally results in better interest rates.
Debt-to-Income Ratio (DTI) — The percentage of gross monthly income devoted to all monthly debt payments, including the proposed mortgage, existing mortgages on other properties, credit cards, auto loans, student loans, and other obligations. Fannie Mae’s maximum DTI for investment property loans is generally 45%, though some automated underwriting approvals may allow up to 50% with strong compensating factors.
Private Mortgage Insurance (PMI) — Insurance required by lenders on conventional loans when the borrower puts down less than 20%. PMI protects the lender against default losses and is paid by the borrower as part of the monthly payment. For investment properties, PMI is not available from most insurers, which is why most conventional investment property loans require a minimum 20–25% down payment. Some lenders offer investment property loans with 15% down, but these are less common and may carry lender-paid mortgage insurance reflected in a higher rate.
Reserves — Liquid assets (savings, checking, money market, non-retirement investment accounts) that the borrower must hold at the time of closing as a financial cushion. Fannie Mae requires reserves of 2–6 months PITI for the subject investment property, plus additional reserves for each additional financed property in the borrower’s portfolio. Reserve requirements increase as the number of financed properties increases.
Loan-Level Price Adjustment (LLPA) — An additional fee (expressed as a percentage of the loan amount) that Fannie Mae charges based on risk factors including LTV ratio, credit score, property type (investment vs. primary), loan purpose (purchase vs. cash-out refinance), and number of units. LLPAs for investment properties are significantly higher than for primary residences, typically adding 1.5% to 4.0%+ to the effective cost of the loan. LLPAs are either paid as upfront points at closing or absorbed into a higher interest rate.
Fannie Mae 10-Property Limit — Fannie Mae’s guideline limiting individual investors to a maximum of 10 conventionally financed residential properties at one time, including both investment properties and primary/second homes. Once an investor reaches this cap, they cannot obtain additional conventional financing and must use alternative products (DSCR, portfolio, or commercial loans) for further acquisitions. The 10-property limit is one of the most significant constraints on conventional investment property lending.
Rental Income (Schedule E) — Rental income from existing investment properties that can be used to offset the expenses of those properties when calculating DTI. Lenders use the borrower’s most recent two years of Schedule E (Supplemental Income and Loss) from their federal tax returns to calculate net rental income or loss. For new acquisitions, lenders may use 75% of the appraised market rent to offset the new property’s PITIA payment.
Occupancy Classification — Fannie Mae classifies properties into three occupancy categories: primary residence (owner-occupied), second home, and investment property. Each category has different qualification requirements, down payment minimums, and interest rate pricing. Investment property classification carries the strictest requirements and highest rates among the three categories. Misrepresenting occupancy to obtain better terms is mortgage fraud.
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Investment Property Conventional Loan FAQ
How much down payment is needed for a conventional investment property loan?
For single-unit investment properties, the minimum down payment is 15% (85% LTV), though many lenders require 20%. For 2–4 unit investment properties, the minimum is 25% (75% LTV). Cash-out refinances require 25% equity for single-unit (75% LTV max) and 30% equity for 2–4 unit (70% LTV max). These requirements are significantly higher than FHA (3.5%) or VA (0%) but apply without any owner-occupancy requirement.
What credit score do you need for a conventional investment property loan?
The Fannie Mae minimum is 620, but practical competitive pricing requires 680 or higher. For properties 5–10 in a borrower’s portfolio, a 720 minimum credit score is required. Credit score has a massive impact on investment property loan pricing through Fannie Mae’s LLPAs — the difference between a 680 and a 760 score can be 0.75–1.00% or more in interest rate. Optimizing credit score before applying is one of the highest-return activities an investor can undertake.
How many investment properties can you finance with conventional loans?
Fannie Mae limits individual borrowers to 10 conventionally financed residential properties at one time, including their primary residence, second homes, and all investment properties across all lenders. For properties 5–10, requirements are stricter: 720+ credit score, 25% minimum down, 6 months PITI reserves per investment property, and a clean mortgage payment history. Once the 10-property cap is reached, investors must use DSCR, portfolio, or commercial loans for additional acquisitions.
Can you use rental income to qualify for a conventional investment property loan?
Yes. For existing rental properties, lenders analyze Schedule E from two years of tax returns, adding back depreciation and payment-related deductions to calculate net rental income or loss that impacts DTI. For the property being purchased, lenders use 75% of the appraised market rent to offset the proposed PITIA payment. If 75% of market rent exceeds PITIA, the excess is added to qualifying income; if it falls short, the deficit is added to monthly obligations.
Can you buy an investment property in an LLC with a conventional loan?
No. Conventional (Fannie Mae/Freddie Mac) loans require the property to be titled in the borrower’s personal name, not in an LLC, corporation, or trust. Many investors close in their personal name and then transfer the property to an LLC after closing for asset protection, but this technically triggers the mortgage’s due-on-sale clause. While most lenders don’t enforce the clause on performing loans, the risk exists. Investors who require entity ownership at closing should consider DSCR loans or portfolio loans, which fully support LLC title.
What is a loan-level price adjustment (LLPA)?
An LLPA is an additional fee that Fannie Mae charges based on risk factors including property type (investment vs. primary), LTV ratio, credit score, loan purpose (purchase vs. cash-out), and number of units. LLPAs for investment properties are significantly higher than for primary residences — typically adding 1.5% to 4.0%+ to the effective loan cost. LLPAs are either paid as upfront points at closing or absorbed into a higher interest rate. They are the primary reason investment property conventional rates are higher than primary residence rates, beyond the base risk premium.
Do conventional investment property loans have prepayment penalties?
No. Conforming conventional loans (Fannie Mae/Freddie Mac) do not carry prepayment penalties for any property type, including investment properties. The borrower can pay off, refinance, or sell the property at any time without incurring an early payoff fee. This is a significant advantage over DSCR loans (which commonly have 3–5 year declining prepayment penalties) and portfolio loans (which often include prepayment provisions).
Is PMI required on a conventional investment property loan?
Generally no, because most conventional investment property loans require a minimum 20% down payment, which eliminates the PMI requirement. PMI is required on conventional loans with less than 20% down, but most private mortgage insurance companies do not offer coverage for non-owner-occupied properties, which is why the practical minimum down payment for investment properties is 20% (not the theoretical 15% that Fannie Mae technically allows for single-unit investment purchases).
How do conventional loans compare to DSCR loans?
Conventional loans offer lower interest rates (6.50–7.00% vs. 6.00–8.00%), no prepayment penalties, and the most favorable long-term cost structure — but require full income documentation, have a 10-property limit, and don’t allow LLC ownership. DSCR loans require no income documentation, have no property count limit, support LLC title, and qualify based on rental income — but carry higher rates, prepayment penalties, and higher fees. Many investors use both strategically: conventional loans for their first 10 properties, then DSCR for continued scaling.
What reserves are needed for a conventional investment property loan?
For borrowers with 1–4 financed properties, Fannie Mae requires 6 months PITI in reserves for the subject investment property plus 2 months PITI for each additional financed property. For borrowers with 5–10 financed properties, reserves increase to 6 months PITI for each investment property and second home. These reserves must be held in liquid accounts (savings, checking, money market, non-retirement investment accounts) and verified at the time of closing. The aggregate reserve requirement for portfolio investors can reach $100,000+ in liquid assets.
Can you refinance a rental property with a conventional loan?
Yes. Conventional refinance options for investment properties include rate-and-term refinances (maximum 75% LTV, to lower the rate or change the term without taking cash out) and cash-out refinances (maximum 75% LTV for single-unit, 70% for 2–4 unit, to access equity for additional investments or other purposes). The property must have been owned for at least 6 months for a cash-out refinance and cannot be listed for sale. Investors can also refinance from FHA or VA loans into conventional financing to eliminate mortgage insurance premiums.
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About the Author
Ryan Nelson
I’m an investor, real estate developer, and property manager with hands-on experience in all types of real estate from single family homes up to hundreds of thousands of square feet of commercial real estate. RentalRealEstate is my mission to create the ultimate real estate investor platform for expert resources, reviews and tools. Learn more about my story.
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