Yes, you can rent your home with a conventional loan. In fact, a conventional loan is the best and most flexible financing option for rental properties if you compare, say, a USDA loan vs. conventional loans. Furthermore, multiple conventional home loan types allow you to own a property without residing there.
So if you’re asking “Can I rent my house with a conventional loan?” You can, and here’s how.
Qualifying for a conventional investment loan
Unlike a conventional mortgage for a residential home, a loan to acquire a rental or investment property can include more stringent criteria:
- Higher interest rates
- Stricter lending requirements
- Six months of property owner expenses in cash reserves
- Larger down payments
When you apply for a conventional loan for a rental or investment property, we will typically examine the following criteria:
- Credit score
- Low debt-to-income ratio
- Current and past employment history
- Current assets, such as checking, savings, and investment accounts
- Proof of income
We will allow you to include your potential rental income on your application as well. Under Fannie Mae or Freddie Mac guidelines, if you’re purchasing a rental property with current tenant rental agreements, you must provide a copy of those rental agreements as proof of income. In this case, we can use 75% of your rental income to help you qualify for a conventional loan.
However, if the property has no current tenants, we will assess the income of comparable rental properties in the area to determine a realistic estimate of your potential income. From there, we can use 75% of your projected rental income earnings toward qualification.
Understanding investment loan down payments
Fannie Mae requires a minimum credit score of 620. The better the credit score, the more potential for less money down. Down payments for conventional investment loans can range from 15% to 20% for a single-family property, while loans for multifamily homes usually require 25%.
You may also secure a lower down payment if you plan to live in the property while you rent it. For instance, if you purchase a duplex with two unique living spaces, you can rent the property while residing there. In this case, down payments can be as low as 15%.
Is a rental or investment property the same as a vacation home?
Loans for vacation homes tend to be less strict than those for investment and rental properties. For instance, your lender may only require a 10% down payment on a vacation home, and you’ll only need two months worth of cash reserves instead of six.
Also, you can’t own a vacation home within close proximity to your primary residence. For instance, if you’re hoping to purchase a beachfront home for a vacation rental but only live an hour away from the same coast, your lender may view your purchase as an investment property.
No matter which loan type you choose, it’s always a good idea to schedule a conventional home loan inspection prior to signing on the dotted line. If you’re thinking of purchasing a rental or investment property or wondering “Can I rent my house with a conventional loan?,” reach out to an OVM Financial professional who can answer your questions, help weigh your options, and start the application process.