Conventional Loans for Investment Properties: The Landlord’s Guide to the Cheapest Money in Real Estate

What Makes a Loan “Conventional”

A conventional loan is a mortgage that conforms to the guidelines set by Fannie Mae or Freddie Mac — the two government-sponsored enterprises that buy mortgages from lenders and package them into mortgage-backed securities. When your local bank or mortgage broker originates an investment property loan and then sells it to Fannie Mae, that loan had to meet Fannie’s underwriting standards to be sellable. Those standards dictate everything: the minimum credit score, the maximum debt-to-income ratio, the required reserves, the allowable property types, and the cap on how many financed properties you can hold.

Because these loans are backed by the secondary market, lenders face less risk originating them. Less risk means lower rates for you. The trade-off is rigidity — you either meet the guidelines or you don’t. There’s no negotiation, no creative structuring, no “let me explain the deal.” The numbers either fit the box or they don’t. That’s the fundamental difference between conventional financing and products like hard money or private money where terms are flexible and deal-specific.

How Conventional Lenders Underwrite Investment Properties

Conventional investment property underwriting is borrower-focused. The lender cares about you first and the property second. They’re evaluating whether you, as an individual, have the financial profile to carry this debt reliably for thirty years. The property matters — it needs to appraise at or above the purchase price and meet basic habitability standards — but you are the underwriting centerpiece.

Credit Score

For investment properties, the minimum credit score is technically 620, but that number is misleading. At 620, your rate will be significantly higher than market, your loan-level pricing adjustments will be steep, and some lenders won’t touch you at all. Competitive rates on investment properties start around 720, and the best pricing kicks in at 740 and above. Every 20-point increment below 740 adds cost to your loan through pricing adjustments that Fannie Mae bakes into the rate. On a $200,000 loan over thirty years, the difference between a 720 score and a 760 score can amount to tens of thousands of dollars in total interest paid.

Debt-to-Income Ratio

Your DTI ratio measures your total monthly debt obligations — including the proposed new mortgage — against your gross monthly income. Conventional guidelines generally cap this at 45%, though some lenders or automated underwriting exceptions allow up to 50% in strong files. For landlords with existing rental properties, the math gets interesting. Lenders will count a percentage of your rental income from existing properties (typically 75% of gross rents, reduced for vacancy and maintenance) as qualifying income, but they’ll also count those mortgage payments as debt. Depending on how your portfolio is structured, rental income can either help or hurt your DTI.

Cash Reserves

This is where conventional underwriting gets heavy for landlords with multiple properties. Fannie Mae requires cash reserves — liquid assets you hold after closing — for each financed property you own. The standard requirement is six months of PITIA (principal, interest, taxes, insurance, and HOA dues) per property. If you own five financed properties with average payments of $1,500 each, that’s $45,000 in reserves you need to show in the bank after closing on your next deal. The reserves don’t get spent. They just need to exist, proving you have a cushion if vacancies hit or repairs stack up.

Acceptable reserve sources include checking and savings accounts, investment accounts (stocks, bonds, mutual funds — typically counted at 60% to 70% of value to account for market fluctuation), vested retirement funds (also discounted), and in some cases cash value life insurance. What doesn’t count: equity in other properties, anticipated rental income, or money you plan to earn next month.

Down Payment

Investment properties require a minimum down payment of 20% for a single-unit property and 25% for two- to four-unit properties. There are no low-down-payment investment property conventional loans. No 3.5% FHA deals, no VA zero-down — those programs are for owner-occupants only. The 20% to 25% down payment requirement means you need significant capital for each acquisition, which directly limits how fast you can scale using conventional debt alone.

The Advantages of Conventional Financing

The Lowest Interest Rates Available

This is the reason conventional loans exist in every serious landlord’s strategy. Rates on conventional investment property mortgages typically run 0.5% to 0.75% above primary residence rates. In a market where owner-occupied rates are 6.5%, you’re looking at 7% to 7.25% for an investment property with strong credit and 25% down. Compare that to DSCR loans in the 7.5% to 9% range, hard money at 9% to 14%, or private money at 8% to 14%. Over a thirty-year hold, even a 1% rate difference compounds into an enormous savings.

On a $200,000 loan, the difference between 7% and 9% is approximately $260 per month. That’s $3,120 per year, or $93,600 over thirty years — on a single property. Multiply that across a portfolio of five or eight properties and the rate advantage of conventional financing is measured in hundreds of thousands of dollars.

Thirty-Year Fixed Terms

A thirty-year fixed-rate mortgage means your principal and interest payment never changes. Not in year five, not in year fifteen, not in year twenty-nine. While your rent increases over time with inflation and market appreciation, your debt service stays flat. That widening gap between rising rents and fixed payments is one of the most powerful wealth-building mechanics in real estate, and conventional financing is the only mainstream product that gives you a full thirty-year runway to exploit it.

Hard money gives you twelve to eighteen months. Private money rarely goes beyond five years. DSCR loans offer thirty-year terms but at higher rates. Conventional financing gives you both the longest term and the lowest rate simultaneously. For buy-and-hold landlords, that combination is unmatched.

Full Amortization

Your monthly payment on a conventional loan includes both interest and principal. Every payment reduces your loan balance. Over thirty years, the entire loan is paid off by the tenant’s rent. You don’t face a balloon payment. You don’t need an exit strategy. You don’t need to refinance at maturity. The loan simply runs its course, and at the end you own a free-and-clear property that produces pure cash flow. That’s not the case with hard money, most private money deals, or even some DSCR products that carry interest-only periods or balloon provisions.

Predictability and Stability

Conventional loans are boring in the best possible way. The payment is fixed. The terms are standardized. The servicing is handled by established institutions. There’s no relationship to manage, no lender calling to renegotiate, no balloon payment looming on the horizon. You make your payment, your tenant covers it, and the loan quietly does its job for three decades. That stability lets you plan your cash flow with precision and sleep well at night — something that’s harder to put a price on than it should be.

No Prepayment Penalties

Conventional mortgages don’t carry prepayment penalties. If rates drop and you want to refinance, you can. If you sell the property in year three, you pay off the loan with no fee. If you come into capital and want to pay the balance down, you can do that too. This flexibility is easy to overlook until you compare it to DSCR loans and hard money deals that often include prepayment penalties ranging from 1% to 5% of the outstanding balance, sometimes stepping down over three to five years.

The Disadvantages of Conventional Financing

The Ten-Property Limit

This is the wall that every scaling landlord eventually hits. Fannie Mae’s guidelines allow a maximum of ten financed properties per borrower, including your primary residence. Once you reach that ceiling, conventional financing is no longer available to you regardless of how strong your credit, income, and reserves are. Ten doors and you’re done.

For many landlords, this limit arrives right when they’re building momentum. You’ve figured out your market, your systems are running, you’re finding deals consistently — and suddenly the cheapest capital available is cut off. This is the single biggest reason landlords transition to DSCR loans, which have no portfolio limit and qualify the property rather than the borrower. Strategic landlords often plan for this transition from the beginning, using conventional debt for their first eight or nine properties and switching to DSCR for everything beyond that.

Qualification Is Document-Heavy

If you’ve ever closed a conventional mortgage, you know the paperwork. Two years of tax returns. Two years of W-2s or 1099s. Bank statements. Profit and loss statements if you’re self-employed. Lease agreements for every rental property you own. Explanation letters for any large deposits, credit inquiries, or employment gaps. The underwriter will question things you’ve forgotten about and request documents you didn’t know existed.

For W-2 employees with simple financial profiles, this is annoying but manageable. For self-employed landlords, business owners, or anyone with a complex tax situation, conventional underwriting can be genuinely painful. Tax strategies that reduce your taxable income — depreciation, business expenses, pass-through deductions — work against you in conventional underwriting because the lender uses your tax returns to calculate qualifying income. The same write-offs that save you money with the IRS can cost you the loan approval.

Slow Closing Timelines

Expect thirty to forty-five days from application to closing, sometimes longer. The process involves a full appraisal, title search, underwriting review, conditions clearing, and coordination between multiple parties. If you’re competing against a cash buyer or a landlord with hard money preapproval who can close in ten days, your conventional timeline is a competitive disadvantage. Sellers with multiple offers will often accept a lower price from a faster, more certain close over a higher price from a buyer who needs six weeks and might not get through underwriting.

Property Must Be Habitable

Conventional lenders require the property to meet minimum habitability standards at the time of closing. The appraisal isn’t just about value — it’s also a condition assessment. Significant deferred maintenance, health and safety issues, structural problems, or incomplete systems (no working HVAC, no functional plumbing, roof damage) can result in a failed appraisal that kills the deal. This means distressed properties, heavy rehab projects, and value-add deals that require substantial renovation before the property is livable are off the table for conventional financing. Those deals belong to hard money or private money.

High Capital Requirements Limit Velocity

Twenty to twenty-five percent down on every deal, plus six months of reserves per financed property, plus closing costs means each conventional acquisition ties up a significant amount of capital. On a $250,000 property, you’re looking at $62,500 down, $9,000 to $12,000 in reserves for that property alone, and $5,000 to $8,000 in closing costs. That’s roughly $80,000 per door. If your goal is to acquire multiple properties per year, the capital requirements stack up fast and become the binding constraint on your growth rate.

When Conventional Financing Makes Sense

Conventional loans are the right tool when you’re buying a stabilized, rent-ready property that doesn’t need significant work. When you have the credit score, income documentation, and reserves to qualify cleanly. When you’re in the early stages of portfolio building and haven’t hit the ten-property ceiling. When the property is in good enough condition to pass a conventional appraisal. And when you have the time — thirty to forty-five days — to get through the process without losing the deal.

If any of those conditions aren’t met, another product is probably a better fit. Not enough income on paper? Look at DSCR loans. Need to close in a week? Hard money. Buying a distressed property? Hard money or private money. Already at ten financed properties? DSCR is your path forward.

The smart play for most landlords is to use conventional financing aggressively while you qualify for it. Lock in those low rates and thirty-year terms on as many properties as you can, knowing that once you hit the Fannie Mae ceiling, every future deal will cost more to finance. Treat your conventional loan capacity as a finite resource and deploy it on your strongest, most straightforward deals.

Finding Conventional Lenders Who Understand Investors

Not every mortgage lender is comfortable with investment property files. Many loan officers spend their careers doing primary residence purchases and refinances, and when a landlord walks in with four existing rentals, a self-employment income stream, and a DTI that requires rental income offsets to work, they don’t know how to underwrite it. The deal dies in processing, not because it doesn’t qualify, but because the loan officer didn’t structure it correctly.

Work with lenders who do investment property loans regularly. They know how to present rental income to underwriting, they understand the reserve calculations, and they won’t be surprised when your file looks different from a first-time homebuyer’s. Our Lender Directory includes conventional lenders who specialize in working with rental property investors, searchable by state.