Conventional investment property loans — backed by Fannie Mae or Freddie Mac — are the default starting point for many investors because they offer the lowest rates of any investment property loan type. They are also the most restrictive. Understanding exactly what conventional loans require, where they break down, and what alternatives exist when they do not work is essential knowledge for any real estate investor building a portfolio.
Conventional Investment Property Loan Requirements
Fannie Mae and Freddie Mac set the guidelines for conventional investment property loans. As of 2026, the core requirements are:
- Down payment: 15% minimum for 1-unit (but requires mortgage insurance), 25% for no-MI on 1-unit, 25–30% for 2–4 units
- Credit score: 620 minimum, but most lenders require 680+ for investment properties at competitive rates
- DTI (Debt-to-Income): Maximum 45%, counting all your personal debts plus the new property payment
- Income documentation: 2 years W-2s or tax returns, pay stubs, full income verification
- Property limit: Maximum 10 financed properties (Fannie Mae guidelines)
- Reserves: 2–6 months PITIA per property, increasing with portfolio size
- Rental income: Only 75% of documented rental income can be used to offset the payment
Conventional Loan Add-Ons for Investment Properties
Conventional investment property loans carry pricing add-ons (called Loan Level Price Adjustments or LLPAs) that do not apply to primary residences. These increase the rate substantially:
- Investment property base add-on: 1.5–3.75% depending on LTV and credit score
- Credit score impact: a 700 score at 75% LTV adds approximately 2.125% to the rate
- Multi-unit impact: 2–4 unit investment properties carry additional LLPAs
- Cash-out refinance adds further pricing penalties on investment properties
The result is that conventional investment property rates are often only marginally lower than DSCR rates — but with far more documentation requirements and restrictions. For many investors, the documentation burden is not worth the 0.25–0.5% rate improvement.
When Conventional Investment Loans Make Sense
Conventional loans work best for:
- First or second investment property for a W-2 employee with strong income and good credit
- Investors below the 10-property limit who have not yet hit portfolio size restrictions
- Strong DTI borrowers whose total monthly debt obligations are well below 45%
- Investors who cannot access the 20%+ down payment required for DSCR (15% down is possible conventionally, with MI)
- Borrowers prioritizing rate above all else who can meet all documentation requirements
When to Move to DSCR Instead
DSCR loans are the better choice when:
- You are at or near the 10-property conventional limit
- Your tax returns show less income than you actually earn (self-employment write-offs)
- Your DTI is too high due to multiple properties or business debt
- You want to vest in an LLC or entity name
- You need to close faster than 45–60 days
- The property is a short-term rental or non-traditional investment
- Rate difference vs DSCR is under 0.5% — rarely worth the documentation headache
The Honest Calculation
On a $350,000 investment property loan, the difference between a 7.0% conventional rate and a 7.5% DSCR rate is approximately $115/month. If DSCR closes in 21 days vs 60 days for conventional, the carrying cost savings alone can offset the rate difference. Run the full math — not just the rate.
Frequently Asked Questions
The minimum is 15% for a single-unit investment property, but you will pay private mortgage insurance (PMI). To avoid PMI, you need 20–25% down. For 2–4 unit investment properties, the minimum is 25%.
Fannie Mae guidelines allow a maximum of 10 financed properties per borrower (including your primary residence). Once you reach 10, you cannot get additional conventional investment property loans and must use DSCR, portfolio, or other non-QM programs.
Yes, but only 75% of documented rental income can offset the property payment. If a property rents for $2,000/month, conventional lenders use $1,500 toward your DTI calculation.
Often less than investors expect, once Loan Level Price Adjustments are applied to conventional investment property loans. Run the actual rate quotes for both options before assuming conventional is cheaper.
No. Conventional loans backed by Fannie Mae or Freddie Mac require personal vesting. Closing in an LLC triggers the due-on-sale clause. DSCR and BPL loans are the appropriate structure for LLC vesting.
You move to DSCR loans, portfolio loans, or commercial financing. DSCR loans are the most common next step — similar process, no portfolio cap, and entity-friendly. Most serious investors shift to DSCR well before hitting the 10-property limit anyway.