Conventional loans are governed by Fannie Mae and Freddie Mac (if you recognize those names). 

Why hold the properties that your wanting to get Fannie Mae financing terms on, in an LLC for the protection of the shell of the LLC?

If you're talking about a single family home then you're going to have to use a conventional bank who will use Fannie Mae rules which means you must have sufficient w2 income.The only way we have been able to get around this is by buying 4 properties and then doing a commercial loan on those 4 properties.

He said I can either get a HELOC on my primary, get conventional Fannie Mae Homepath loan which is 3% down for new property or look into first lien HELOC (very complicated loan).

And since I don't understand where the 120K debt is coming from I assume it's on the rental which means it's probably in the red after interest and depreciation so it's actually hurting your income.You could get the rental debt off personal and into a LLC but it would take time and fees and only result in higher interest rates but you could use the target property's income.Your credit score is excellent and Fannie Mae recently changed student loan rules last year to take lower income based payments as opposed to FHA's 1% rule if it turns out the 15K is hurting your DTI.The last option is to sell the rental show the gain as income and combine that with a W-2 for 2018, pay down more debt and wait to 2019 to try again with more income and less debt.

The last bank (US Bank) I spoke with insisted that they are putting me in the commercial loan category and that it is still a residential loan, but because it is 3 units Fannie Mae requires 25% down. 

Homepath is a program that allows you to buy Fannie Mae owned properties or essentially their foreclosures.

Also transwest and Utah community credit union do portfolio loans outside of Fannie Mae and Freddy Mac guidelines. 

Fannie Mae: With good credit etc, often times 2 years does the trick to get a 1 year calculation of income.

@Benjamin AllenThe reason investor use Commercial Financing for SFR (4 units) is because they either have used up Fannie Mae and Freddie Mac financing or the DTI is too high.