Conventional Investment Loans

Conventional mortgages—those backed by Fannie Mae or Freddie Mac—are the standard financing tool for landlords with 1–3 rental units. They offer lower rates and established underwriting rules, but come with strict property limits and income requirements.

Key takeaways

• Conventional investment loans require 20–25% down with no mortgage insurance available
• Interest rates are 0.5–1.0% higher than primary mortgages in the same market and credit tier
• Lenders typically allow only 75% of documented rental income in debt-service calculations
• First-time landlords often cannot use the property's rental income to qualify; personal income alone must cover the mortgage
• A single borrower can conventionally finance no more than 10 investment properties (more on this in the next article)

What makes a loan conventional

A "conventional" mortgage is one that conforms to Fannie Mae or Freddie Mac standards. These government-sponsored enterprises (GSEs) set underwriting rules, loan limits, and acceptable property types. Conforming loans can be sold into the secondary market and bundled into mortgage-backed securities. Non-conforming loans—jumbo mortgages, portfolio loans, and loans on non-standard properties—stay on the lender's books.

For investment property, "conventional" usually means a 1–4 unit residential property in decent condition in a major US market. Single-family homes, duplexes, triplexes, and four-plexes (where you rent all units) qualify. Five-unit and larger buildings are treated as commercial real estate and require different financing. Investment properties in rural areas, properties needing extensive repair, or unique structures (mobile homes, condos with poor reserves) are harder or impossible to finance conventionally.

Down payment: 20% minimum, usually 25%

The GSEs require a 20% down payment minimum on investment properties, non-negotiable. No mortgage insurance exists for investment loans like it does for primary mortgages. You cannot put 15% down and buy insurance to cover the remaining 5%; the lender simply won't approve a loan with LTV above 80%.

In practice, most lenders ask for 25% down on a first or second investment property, especially if you're a newer landlord. A 25% down payment signals strong commitment and gives the lender more cushion if the property declines in value or tenants stop paying rent. Some lenders offer 20% if you have substantial liquid reserves ($100,000+) or multiple investment properties already performing well.

Down payment sizes creep up as you accumulate properties. Your third investment property might be 25%, your fifth might be 30%, and if you're approaching the 10-property cap, lenders may demand 35% or decline you entirely. This graduating pressure forces you to think strategically about timing and financing sources if you want to build a larger portfolio.

Concrete example: a $250,000 single-family rental house.

• 20% down = $50,000
• 25% down = $62,500
• 30% down = $75,000

That progression means every property added to your portfolio requires more capital than the last. If you plan to own 10 properties, you need to save or redeploy capital continuously. Many landlords address this by using HELOCs or cash-out refinances on earlier properties to fund later down payments.

Interest rates

As of May 2026, conventional investment mortgage rates hovered around 7.0–7.5% for borrowers with 740+ credit scores and 20+ years of investment experience. A new landlord with good credit but no rental history might face 7.5–8.0%. These rates are 0.5–1.0% higher than a primary mortgage in the same market (6.2–6.5% at the time).

Rate discounts exist for strong borrowers: more than $100,000 in liquid reserves, significant rental income history (3+ years of tax returns), or a portfolio of performing investment loans elsewhere. A borrower who has successfully managed three rental properties and has $200,000 in liquid reserves might qualify at 6.8% versus a first-time landlord at 7.5%.

Points (prepaid interest) also factor in. A lender might offer 7.0% with zero points, or 6.7% with 1.5 points (1.5% of the loan amount paid upfront). For a $200,000 loan, 1.5 points is $3,000. If you plan to hold the property 10+ years, the lower rate pays for itself. If you expect to refinance or sell within 3 years, the points are wasted.

Debt-to-income and cash flow qualification

Conventional underwriting for investment property works differently than primary mortgages. Lenders add rental income to your qualifying income, but only at 75% of documented monthly rent. That 25% discount accounts for vacancies, turnover, repairs, and other operating losses.

Here's the income side:

• Your W-2 wages: $120,000/year = $10,000/month gross
• Rental income on the property being financed: $2,000/month gross = $1,500/month at 75%
• Total qualifying income: $11,500/month

On the obligations side, lenders count:

• New mortgage payment (principal + interest): $1,100/month
• Property taxes and insurance: $400/month (estimated)
• Maintenance reserve: 25% of gross rent = $500/month (on $2,000 rent)
• Total new obligations: $2,000/month

Your housing expense ratio (new obligations / qualifying income) becomes $2,000 / $11,500 = 17.4%, well under the 43% limit. You qualify.

But that assumes you have documented rental history. If you have no prior rental properties, many lenders won't count any of the new property's income. They require you to prove debt service with your personal income alone. In that case:

• Your W-2 wages: $120,000/year = $10,000/month gross
• Rental income on new property: $0 (not counted, first property)
• Qualifying income: $10,000/month
• New obligations: $2,000/month
• Housing ratio: 20%, still acceptable

Once you close the first property and have one year of tax returns showing actual rental income, the second property becomes easier to qualify for because now you have documented history.

Debt-to-income is also affected by your existing credit card balances, auto loans, student loans, and any other obligations. A borrower with $500/month in car payments and $300/month in credit cards has only $9,200/month left to deploy for a new mortgage. The stricter your existing obligations, the harder it is to qualify for the next investment property.

Credit score requirements

Primary mortgages accept 580–620 credit scores (FHA) or 640+ (conventional). Investment properties are different. Most conventional lenders require 720–740+ credit. Some ask for 760+. The reasoning is straightforward: an investment borrower has less margin for error. If you hit a personal financial setback, you're more likely to default on a rental property than on your primary residence. Lenders screen for this by demanding near-pristine credit.

Exception: portfolio lenders and private lenders sometimes accept 680–700 credit scores on investment properties if compensated with higher rates or larger down payments.

Documentation required

Investment mortgage applications demand more documentation than primary mortgages:

• 2 years of personal tax returns (all schedules) showing consistency in income
• 2 years of business tax returns if self-employed
• 2 years of rental property tax returns and statements (if you already own rentals)
• Detailed rent rolls and lease agreements for existing properties
• Property appraisal and title report
• Proof of liquid reserves (bank statements, investment account statements)

The lender wants certainty that your rental income is real and stable. A primary mortgage applicant with stable W-2 income needs minimal documentation. An investment applicant must prove landlord credentials.

First-time landlords often skip the second year of tax returns (they don't have them yet), so lenders proceed with one year's tax return and a copy of your lease on the property being financed. This is acceptable but may result in a slightly higher rate or larger down payment.

Property condition and appraisal

Conventional lenders require properties to be in good condition. Rental properties cannot be extensively damaged, have deferred maintenance, or require major repairs. The appraisal process is stricter for investment property than for owner-occupied homes. An appraiser will walk the property, check for code violations, verify that rents are market-based (not inflated on the lease), and confirm that the property is available to lease.

If the property is being renovated, most conventional lenders won't finance it until renovation is complete and a final appraisal is done. Hard-money and portfolio lenders, discussed in later articles, are more flexible on condition, but conventional is not.

Loan limits and property count caps

As of 2026, Fannie Mae's standard conforming loan limit is $766,550 (HCOL areas higher). You can finance a $700,000 rental property conventionally. But Fannie Mae also caps the number of investment properties a single borrower can own under conventional financing at 10 total. Once you hit 10, you cannot originate an 11th conventional mortgage through Fannie Mae. This ceiling is discussed in depth in the next article.

For now, understand: conventional financing is the cheapest, most accessible path to owning 1–10 rental properties. It works beautifully for the first handful of acquisitions. But if you plan to scale to 15, 20, or 100 properties, conventional will not be your tool for the entire portfolio.

Refinancing investment property

Once you own a conventional investment mortgage, you can refinance it (rate-and-term, or cash-out) as long as you stay under 80% LTV. A property that appreciated in value from $300,000 to $350,000 can support a $280,000 loan (80% of $350,000), up from the original $240,000 (80% of $300,000). You can cash-out $40,000 of the $80,000 equity gain to fund a second property's down payment.

Refinancing is subject to the same documentation and underwriting as the original loan. Your income, credit, and rental history are re-examined. If your credit score has dropped or your income has declined, you may be denied refinance even if the property has appreciated.

Interest-only options and loan terms also matter. A conventional investment refi typically runs 25 or 30 years, not the 40-year amortization some portfolio lenders offer. This builds equity faster but raises monthly payments.

Seasoning rules

Many lenders require that you own the property for 6–12 months before you can cash-out refinance and pull equity. This "seasoning" requirement is meant to prevent appraisal fraud (buying a property at market price, inflating the appraisal, and immediately refinancing at the fake value). A 6-month hold period is standard. Some lenders allow rate-and-term refis immediately; others require seasoning even for rate drops.

This matters if your strategy includes rapid acquisition. You might buy property A, close in month 1, plan a cash-out refi in month 6, and use that cash to buy property B. If the lender imposes a 12-month seasoning, that timeline slips.

Summary: The limits of conventional

Conventional investment mortgages are the low-cost, standardized path to owning a handful of rental properties. They offer rates 0.5–1% above primary mortgages, require 20–25% down, and use sensible income calculations that count 75% of rental income. They're accessible, predictable, and widely available.

But they're not scalable beyond 10 properties per borrower, and each successive property is marginally harder to finance because down payments rise, lenders become more conservative, and your DTI tightens. Once you exceed 10 conventional properties or want to move faster with less equity, you need different tools. The next article explains what happens when you hit that 10-property ceiling and how portfolio loans become necessary.

Flowchart

Related concepts

• Investment vs Primary Mortgage
• The 10-Property Fannie Cap
• Portfolio Loans

Next

Once you've financed 10 conventional investment properties, you hit an immovable wall. The next article explores why that ceiling exists, what triggers it, and how it reshapes your financing strategy if you want to build a larger portfolio.