At a glance
- Occupancy
- Investment only
- Qualifies on
- Your income, plus rent
- Borrowers
- Individuals, not LLCs
Educational overview, not a loan offer. Requirements vary by lender and borrower.
Overview
A conventional investment property loan finances a home you will rent out instead of living in, under Fannie Mae or Freddie Mac guidelines. Qualifying is based on your documented personal income, and rent from the property can count under agency rules.
These loans cover one- to four-unit properties and are made to individuals, not LLCs. Pricing and reserve requirements are usually higher than for a home you live in, and Fannie Mae limits how many financed properties a borrower can have. Investors who want to close in an LLC, or qualify on the property's rent instead of personal income, often compare a DSCR loan.
How a conventional investment property loan works
A conventional investment property loan is a mortgage on a one- to four-unit home you will rent out, written to Fannie Mae or Freddie Mac standards so the lender can sell it to one of them. Underwriting looks at you first: your credit, documented income, debts and cash reserves. Rent from the property can be added to the picture, but only under the agencies' formulas.
Both agencies generally require these loans to go through their automated underwriting systems, Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor, and to receive an approve or accept recommendation; manual underwriting is not offered for investment properties. Fannie Mae also applies loan-level price adjustments to every investment property loan, one reason pricing differs from a home you occupy.
Who a conventional investment loan can fit
A conventional investment loan fits investors whose own income and tax returns carry the file. It fits less well if you want to borrow in an LLC's name, if your tax returns show little income after deductions, or if you are approaching the agencies' cap on financed properties; those investors often compare a DSCR or bank statement loan. Situations where it fits:
- A salaried or self-employed investor whose income shows clearly on tax returns and pay records.
- A homeowner buying a first or second rental who wants the standardized terms of an agency loan.
- A landlord refinancing an existing rental, with or without cash out.
- A buyer of a two- to four-unit building who will not live in any of the units.
Fannie Mae and Freddie Mac rules for investment properties
The agencies buy loans made to individuals. Fannie Mae's exceptions are narrow, such as certain revocable living trusts, so an LLC or corporation generally cannot be the borrower. Each borrower needs acceptable credit, income the lender expects to continue, and lawful residency.
Fannie Mae limits a borrower to ten financed properties when the new loan is for a second home or investment property. The count includes your own home if it has a mortgage, treats a two- to four-unit building as one property and counts jointly financed homes once. Properties where you are not personally obligated on the mortgage, such as those financed in an LLC's name, are left out, as are commercial buildings, apartment buildings with more than four units and vacant land.
Gifts cannot be used toward an investment purchase under Fannie Mae or Freddie Mac rules, so the down payment, closing costs and reserves must come from your own funds.
See also
Credit standards for conventional investment loans
Credit scores affect both whether the automated system issues an approval and how the loan is priced. The agencies publish minimum scores in their eligibility matrices, many lenders add their own minimums, and investment properties carry price adjustments that a home you occupy would not, at the same score. Your loan officer can show where your scores fall.
Past credit events matter more on a rental. After a foreclosure, Fannie Mae's shorter waiting period for documented extenuating circumstances allows buying a home to live in or a limited cash-out refinance, but an investment purchase must wait the full period. Late payments on any mortgage, including those on other rentals, weigh heavily in automated underwriting.
See also
Equity and mortgage insurance on an investment purchase
The agencies require more equity on a rental than on a home you occupy, and two- to four-unit investment buildings need more than one-unit homes. Cash-out refinances on rentals have their own, stricter limits. The exact maximums appear in each agency's eligibility matrix, and your loan officer can show the figures for your purchase.
A conventional loan needs mortgage insurance whenever it exceeds a set share of the home's value, so an investment purchase made with the smallest allowed down payment can carry it, while a larger down payment avoids it.
For cash-out, Fannie Mae generally requires at least one borrower to have been on title for six months. Time an LLC you control held the property can count, but the property must be deeded to you before closing. Delayed financing allows cash-out soon after an all-cash purchase, including one made through an LLC you wholly own, if the agency's conditions are met.
See also
How rent and income are documented
Your own income is documented the usual way: pay stubs and W-2s, or tax returns for self-employment, plus asset statements for funds to close and reserves. Fannie Mae also requires the lender to document your current housing payment before any rent from the property can be used.
Rent is documented separately, and the source depends on the transaction:
- Purchase: the appraiser's rent schedule, Fannie Mae Form 1007 for one unit or Form 1025 for two to four units, plus any lease being transferred to you.
- Refinance: your most recent tax return with Schedule E, the rent schedule, and a current lease only in limited situations, such as a property placed in service after your last return.
- New leases: proof the lease is in effect, such as recent rent deposits or the deposit and first month's rent. For a property not yet on your tax return, a lease with a relative or other interested party does not count.
Debt-to-income and how rent is counted
Conventional investment loans are qualified on your debt-to-income ratio: monthly debts divided by gross monthly income. The agencies set the outer limits, automated underwriting weighs them against credit and reserves, and lenders may be stricter.
For the property being financed, Fannie Mae starts with the gross rent, counts only part of it to allow for vacancy and maintenance, then subtracts the full payment of principal, interest, taxes, insurance and dues. On a refinance, it uses the Schedule E cash flow from your tax return instead, adding back items such as depreciation.
What happens next depends on experience. With at least a year of property management experience, a positive result can be added to your income. With less, the rent can only offset the property's own payment, so the new rental cannot raise your qualifying income. A loss is always counted as a debt.
Rental property types and occupancy
Eligible properties include one- to four-unit homes, townhomes, homes in planned developments and condos in projects that meet agency standards. Condo-hotel and resort projects are not eligible, and neither agency buys investment loans on manufactured homes.
Occupancy is the dividing line. An investment property is one you own but do not live in. If you will live in one unit of a two- to four-unit building, it is a primary residence loan instead, with different rules. A one-unit vacation home you use yourself may fit second-home financing, but rent from a second home cannot be used to qualify.
Short-term rental income can count only on a one-unit investment property that is legally allowed to operate that way, and only to offset that property's payment.
Loan limits for investment properties
Conventional conforming loans must fit under the Federal Housing Finance Agency's loan limits, which vary by number of units and by county. For 2026, FHFA's baseline limits for most of the country are $832,750 for one unit, $1,066,250 for two units, $1,288,800 for three units and $1,601,750 for four units.
In designated high-cost areas the limits are higher, up to $1,249,125 for a one-unit home in 2026, and Alaska, Hawaii, Guam and the U.S. Virgin Islands have their own higher limits. Loans above the limit for the county are jumbo loans with separate rules. FHFA announces new limits each November for the following year, so check the current figure for the property's county.
Why investors use conventional financing
If your income documents are strong, the agency route offers standardized terms for a rental, and the rules are published for anyone to read.
- Agency standards make terms and documentation predictable from one lender to the next.
- Many lenders offer both fully amortizing fixed-rate and adjustable-rate options.
- Rent can strengthen the application once you have property management experience.
- Agency rules allow purchase, rate-and-term refinance and cash-out refinance on one- to four-unit rentals.
- Fannie Mae's HomeStyle Renovation loan can finance a one-unit investment property together with planned improvements.
Reserves, property-count limits and other tradeoffs
Price adjustments apply to every agency investment loan, so pricing is usually higher than for a home you occupy. Reserve requirements are higher too: the automated system requires reserves for the rental itself and adds reserves based on the balances of your other financed properties.
Documentation is full: tax returns, pay records and explanations for any gaps. You must borrow as an individual, gifts are not allowed, and temporary rate buydowns cannot be used. A newer landlord's rent may only offset the property's own payment.
As with any rental, a vacancy, repair or tenant problem does not pause the mortgage payment. Plan reserves beyond the minimum if the property is older or the local rental market is seasonal.
See also
Talk it through with Ruben
Investment loans compared with DSCR, second home and multi-unit options
Conventional, DSCR and owner-occupied multi-unit loans can all involve rental income, but they decide differently. This table compares features only; pricing depends on the full scenario. A second home is included because buyers sometimes confuse the two occupancy types, and the choice changes what you certify at closing.
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| Feature | Conventional investment | DSCR | Second home | Two- to four-unit, owner lives there |
|---|---|---|---|---|
| Qualifies on | Your income and DTI | Property rent vs. payment | Your income and DTI | Your income, plus some rent |
| Borrower | Individuals | Individuals or LLC | Individuals | Individuals |
| You live there | No | No | Part of the year | Yes, in one unit |
| Rent counts | Under agency formula | Main test | No | Under program rules |
| Gifts allowed | No | Some programs | Yes, with limits | Yes, with limits |
| Rules set by | Fannie Mae, Freddie Mac | Each lender | Fannie Mae, Freddie Mac | FHA, VA or the agencies |
Documenting rent and reserves in an investment file
Expect a full-documentation file. The appraisal, condo review, title issues and reserve verification usually drive timing, and an automated approval is conditional until every document is verified.
Gathering these early avoids delays later:
- Recent tax returns with Schedule E if you already own rentals, plus pay stubs and W-2s or business returns.
- Statements for every account used for closing and reserves, with large deposits explained.
- Leases and rent deposits for properties not yet on your tax return.
- Mortgage statements, insurance and tax bills for each property you own.
- For condos, the association questionnaire and budget the lender requests.
Investment loan myths about rent, LLCs and property limits
Investors often run into rules that have little to do with the property itself.
- Myth: the full rent counts as income. Reality: Fannie Mae counts only part of the gross rent, subtracts the payment, and adds a positive result to income only for experienced landlords.
- Myth: an LLC can borrow if I personally guarantee the loan. Reality: agency loans go to individuals; an LLC borrower points to a DSCR or other business-purpose loan.
- Myth: there is no limit on financed properties. Reality: Fannie Mae caps the count at ten when the new loan is for a second home or rental.
- Myth: I can call it a second home and rent it out. Reality: occupancy must be stated accurately; rent from a second home cannot be used to qualify, and misstating occupancy can have serious consequences.
Common questions
15 questions
Can a conventional lender count rent from an investment property toward my income?
Agency rules allow it, within limits. Rent is documented with leases, tax returns or the appraiser's rent estimate, depending on the situation, and how much counts depends on your history. Under Fannie Mae rules, rental income can add to your qualifying income only after at least a year of property management experience; without it, the rent can offset only the property's own payment.
Can I buy a rental in my LLC with a conventional loan?
No. Fannie Mae buys loans made to individuals, with limited exceptions such as certain revocable trusts. If closing in an LLC matters to you, a DSCR loan is the common alternative.
How many financed properties can I have with a conventional investment loan?
Fannie Mae allows up to 10 financed properties when the new loan is for a second home or investment property, counting your own home if it has a mortgage. A two- to four-unit building counts as one property, and reserve requirements rise as the count grows.
Can I use an FHA or VA loan for a rental?
Generally not, if you will not live in the property. FHA does not insure purchase loans on investment properties for individual borrowers, and VA requires you to certify that you intend to live in the home. You can buy a two- to four-unit property with FHA or VA if you live in one of the units. Refinance rules for an existing FHA or VA loan differ, so ask your loan officer.
How does this compare with a DSCR loan?
A conventional investment loan uses your personal income and tax returns and follows agency limits. A DSCR loan qualifies mainly on the property's rent, often allows an LLC, and the lender sets its own limit on financed properties. Pricing and down payment rules differ, so your loan officer can compare both for the property.
Can a family member give me money toward a rental purchase?
Not for a conventional investment loan. Fannie Mae and Freddie Mac do not allow gift funds on investment property purchases, so the down payment, closing costs and reserves must come from your own documented accounts. Some DSCR and other Non-QM programs accept gifts under their own conditions. If family help is essential, ask your loan officer which programs allow it before you make an offer.
Why does the lender need to know what I pay for my own housing?
Fannie Mae requires the lender to document your current housing payment, such as rent, the full payment on a home you own, or the property taxes on a home you own free and clear, before any rent from the investment property can be used to qualify. If you live rent-free, for example with family, the new property's rent generally cannot count. Your loan officer can check how your living arrangement affects the numbers.
Why doesn't the lender count all of the rent?
Rentals have vacancies, repairs and turnover costs, so Fannie Mae counts only part of the gross rent from a lease or rent schedule before subtracting the property's full payment. On a refinance of a rental already on your tax return, it works from the Schedule E cash flow instead, adding back depreciation, interest, taxes, insurance and association dues. Your loan officer can show the calculation for your property.
Do rentals I own through an LLC count toward the ten-property limit?
Not if you are not personally obligated on the mortgage. Fannie Mae counts financed one- to four-unit properties where you or a co-borrower are personally on the loan, including your own home. Properties financed in an LLC's name without your personal obligation, commercial buildings, apartment buildings with more than four units and vacant lots are left out. A personal guarantee can change the analysis, so ask.
How are reserves calculated on a conventional investment loan?
Fannie Mae's automated system sets a reserve requirement for the rental itself and adds reserves calculated from the unpaid balances on your other financed properties, so the amount grows with your portfolio. Reserves must be your own liquid or near-liquid funds remaining after closing, such as checking, savings, investments or the vested part of a retirement account. Your loan officer can calculate the requirement once your property list is complete.
Can I buy a rental that needs renovation with a conventional loan?
Possibly. Fannie Mae's HomeStyle Renovation loan can finance a one-unit investment property together with the cost of the work, under its renovation rules. Two- to four-unit rentals are not eligible for that option. For heavy rehabs you plan to resell, investors usually use a short-term fix-and-flip loan instead and then refinance or sell when the work is done.
Can rent from my current home help me buy my next one?
Partly. When you move out and keep your current home as a rental, Fannie Mae lets the lender estimate its market rent, but a lease cannot be used for a departing residence, and the rent can only offset that home's own payment. If you have less than a year of landlord experience, extra reserves for the vacated home are required. Your loan officer can show how both payments fit.
Can I move a rental out of my LLC to refinance it conventionally?
It is possible. Under Fannie Mae rules, the property must be deeded from the LLC into your individual name before the new loan closes. For a cash-out refinance, the time an LLC you majority-own or control held the property can count toward the agency's six-month ownership requirement. Talk with an attorney or tax adviser before transferring title, since it can affect liability protection and other agreements.
Are condos eligible for a conventional investment loan?
They can be, when the condo project meets Fannie Mae or Freddie Mac standards, which the lender checks through a project review unless a review waiver applies. Projects run like hotels or resorts, projects needing critical repairs and some projects in litigation are ineligible. A heavy share of investor-owned units can prompt extra review for hotel-like operation. If the building does not qualify, a non-warrantable condo loan may be the alternative.
Why is pricing different for an investment property?
Fannie Mae applies loan-level price adjustments to every loan secured by an investment property, on top of adjustments for credit score, loan-to-value and other factors. Lenders generally reflect those adjustments in the rate or costs they quote. The size depends on the full scenario, so ask your loan officer to compare quotes on the same day for the property you have in mind.
This page explains how this type of loan generally works. Programs, guidelines and availability vary by lender and change often. Contact Ruben to see which options are available for your scenario today.