A conventional loan is a mortgage that is not backed by the government, like FHA or VA loans. It is usually offered by private lenders, such as banks or credit unions, and follows guidelines set by Fannie Mae or Freddie Mac. These loans typically require good credit, a stable income, and a down payment, which can range from 3% to 20% or more, depending on the type of loan. However, you may get a conventional loan with less than 20% down, but you will typically need to pay private mortgage insurance (PMI) until you reach 20% equity in the property. Some programs allow a little as 3% to 5% down for primary residences, but investment properties usually require at least 15% to 25% down.

As said above, a conventional loan is best when you have strong credit, a steady income, and enough savings for down payment. It is ideal if you want lower long-term costs since it usually has better interest rates and no upfront mortgage insurance like FHA loans. It also works wells for investment properties, including multi-family rentals, since government-backed loans have more restrictions. 

A conventional loan can be used for various property types, including primary residences, second homes, and investment properties. It works for single-family homes, condos, townhomes, and multi-family properties (up to 4 units). Since you are looking at a 5-unit or more multi-family property, a conventional loan would not work for that. You would need a commercial loan or DSCR loan instead.

For a conventional loan, lenders typically require the following income documentation, which help the lenders verify yours income and employment stability:

    1. Pay Stubs: Usually covering the most recent continuous 1 month
    2. W-2 or 1099 Forms: For the past 2 years
    3. Tax Returns: Personal tax returns for the last 2 years, including all Schedules
    4. Bank Statements: Sometimes required to show assets and reserves. 

Also, for self-employed borrowers applying for a conventional loan, lenders typically require additional documentation to verify income:

    1. Tax Returns: Personal and business tax returns for the last 2 years, including all schedules
    2. Profit and Loss Statement: A year-to-date profit and loss statement may be required to show current income
    3. Business Bank Statements: Sometimes lenders will request business bank statements to further verify income and cash flow.
    4. Additional Documentation: Depending on the lender, they might also ask for a business license, client contracts, or other proof of business operations.

These documents help lenders assess the stability and reliability of self-employed income.

If you are looking at this conventional loan and want to learn more about it, please feel free to contact our UFM experts for detailed information.