Real estate investing: How many mortgages can you have?

If you’re investing in real estate and bringing in some money, you may be thinking about expanding your investment. Buying another investment property likely requires another mortgage, which raises a key question: How many mortgages can you have? The answer depends on the type of property and the type of loan.

How many home loans can you have?

Fannie Mae limits a borrower to 10 mortgages. This applies to homes with 1 – 4 units where the borrower is personally obligated to repay the mortgage.

This differs for your primary residence, which has no limit on the number of mortgages you can have on it. However, you can have only one primary residence at a time. Most people don’t have more than two mortgages — a primary and a secondary loan, such as a home equity loan or line of credit — on their primary residence at one time.

If you have a HomeReady® loan on your primary residence, Fannie Mae limits you to two mortgages.*

These limits don’t apply to commercial real estate, multifamily homes with more than four units, ownership in a timeshare, ownership of a vacant lot, or ownership of a manufactured home installed on leased land.

Qualifying for 1 – 6 mortgages

If you want to qualify for financing on up to 6 mortgages, Fannie Mae requires a credit score of 620 or higher. Fannie Mae also sets cash reserve requirements depending on the number of properties you have:

• For 1 – 4 second homes or investment properties: You’ll need 2% of the unpaid principal balance plus 2 months of mortgage payments, including principal, interest, taxes, insurance, and association fees.
• For 5 – 6 second homes or investment properties: You’ll need 4% of the unpaid principal balance plus 6 months of payments.

Your lender may also ask you to meet additional requirements, including:

• A credit score in the 620 – 680 range
• A loan-to-value ratio up to 85%
• Cash flow availability from current rental properties
• Proof of income from W-2s or tax returns
• A statement of assets and liabilities
• Financial statements for any existing investment properties
• Proof of existing conventional mortgages

Qualifying for 7 – 10 mortgages

Fannie Mae sets higher standards if you want 7 – 10 mortgages. To qualify, you’ll need a credit score of 720 or higher. You’ll also need to have cash reserves equal to 6% of the unpaid balance plus 6 months of mortgage payments.

Lenders also impose stricter qualifications when you’re seeking 7 – 10 mortgages. They’ll typically request a 15% – 20% down payment on each investment property and up to 25% down on duplexes, triplexes, and quads.

Alternative ways to finance multiple investment properties

When conventional mortgages reach their limits or don’t align with your investment timeline, alternative financing can keep your portfolio growing. Real estate investors often turn to these options when they have maxed out traditional loan limits or want more flexible terms. They can help with faster closings, too.

That said, while these alternatives can unlock opportunities that conventional loans can’t, they typically come with higher costs, increased risk, and stricter terms.

Hard money loans

Hard money loans don’t come from traditional lenders. Instead, they come from private funding from individuals and companies. Lenders often look for properties that won’t stay on the market for long and that have strong selling potential.

A hard money loan also is a secured loan. This means the lender accepts property as collateral. In other words, if a borrower defaults on a hard money loan, the lender takes possession of the property.

Before you commit to one, you should consider that hard money loans:

• Don’t require as strict of an approval process. As a borrower, you might turn to this option if you can’t get approved for a conventional loan.
• Can be closed in just days, as opposed to the month or so it may take to get a conventional mortgage
• Often come with higher interest rates compared with conventional loans
• May require a larger down payment because lenders may want to finance only 70% – 80% or less of the property value

Still, hard money loans can offer real estate investors and house flippers the quickest way to buy multiple properties.

Blanket loans

Blanket mortgages allow you to finance multiple properties under the same mortgage agreement. Blanket mortgages allow for an efficient and often less expensive buying process.

Another benefit of a blanket mortgage is that as soon as one property under the agreement gets refinanced or sold, a clause “releases” that property from the original mortgage. The other properties under the original mortgage stay on the mortgage. In other words, you don’t have to pay off the full loan.

Before obtaining a blanket loan, think about the following:

• Buying properties under a blanket mortgage means that all properties get the same financing terms
• Defaulting on the loan could mean risking all your existing properties
• You may face strict requirements when seeking a blanket mortgage
• Because of the different rules that exist from state to state, you can’t use a blanket mortgage to purchase properties in multiple states
• You’ll pay much higher closing costs on a blanket mortgage than a conventional mortgage

Despite these drawbacks, blanket loans can make it easier to buy multiple properties in the same area.

Portfolio loans

A lender originates and keeps a portfolio loan instead of selling it on the secondary mortgage market. In other words, a portfolio loan stays in the lender’s portfolio. Lenders set their specific underwriting standards for borrowers.

Very similar to a hard money loan in processing time, a portfolio loan significantly reduces the amount of time you’ll spend waiting to get financing for your properties.

However, a portfolio loan can end up being more expensive than an equivalent conforming loan due to higher interest rates or prepayment penalty charges. These higher costs stem at least partly from your lender not being able to sell the loan and assuming the entire risk of the portfolio loan.

Portfolio loan borrowers must also provide a high down payment as well as proof of ample assets and high income. The trade-off is faster approval with more flexible qualifying criteria.

Cash-out refinancing

You may want to consider a cash-out refinance, which allows you to borrow the equity in your existing properties. You take out a new mortgage based on your property’s current market value, pay off your current loan, and keep the difference. You can use this money to fund your next property purchase and repay the cash you borrowed as part of your new mortgage.

Let’s say you owe $100,000 on a $200,000 property – you’ve paid off $100,000 of the principal balance. You can take a portion of that $100,000 in home equity and put it toward purchasing another property.

What is the maximum number of mortgages you should have?

Just because you can have 10 mortgages doesn’t mean you should. The right number depends on your cash flow and how much risk you’re comfortable with.

As you take on more mortgages, lenders get pickier. You may need a larger down payment, more cash reserves, and a higher credit score. You also can expect higher interest rates when you have multiple properties.

Overall, make sure that building your portfolio doesn’t stretch you too thin financially.

What makes having multiple mortgages complicated?

Every new mortgage complicates your financial life. Cash flow becomes more complex when you’re juggling payments on several properties, especially if one sits vacant longer than expected. Your debt-to-income ratio shifts with each property, too, which can affect your ability to secure good terms on future deals.

Be prepared for lenders to dig deeper into your finances as your portfolio grows. You’ll likely need to provide profit and loss statements for each rental property, lease agreements, bank statements showing rental deposits, and explanations for any vacancy periods.

Keeping your documents organized will be very important. Start separate files for each property with all financial documents easily accessible, tracking rental income and expenses. You may also find it helpful to find lenders that specialize in investment properties.

What to know about managing multiple mortgages

Here are a few tips that can make managing multiple mortgage loans easier:

• Use the same lender. Working with one lender for multiple properties streamlines communication and paperwork. You’ll build a relationship and may be able to move faster on future deals.
• Try to stagger your due dates. Spread your mortgage payments throughout the month instead of having them all due on the same day. This creates better cash flow and gives you time to collect rent before payments are due.
• Plan ahead. Keep financial projections for each property and maintain higher cash reserves than you think you need. Unexpected repairs and vacancy periods will happen, so make sure to budget for them.
• Review your portfolio regularly. Do regular reviews to assess each property’s performance, refinancing opportunities, and overall portfolio health. Market conditions change, so make sure you’re keeping track of them.

Multiple mortgages mean added financial responsibilities, but it’s possible to manage them well.

The bottom line: You can have multiple mortgages

You can finance up to 10 investment properties through conventional mortgages, but it’s important to be disciplined about your cash management. Sometimes, lenders will approve more than what you can comfortably afford, which can lead to problems later.

When conventional mortgages don’t work, there are alternative financing options. Hard money loans, blanket loans, portfolio lenders, and cash-out refinancing can all help you build wealth through real estate.

Start your mortgage application process today and see what financing options are available for your next property.

* Client will receive a 1 point (1.000) loan level price adjustment (LLPA) credit on HomeReady and Home Possible purchase loans locked on or after January 2, 2024. One point (1.000) is equal to 1% of the loan amount. Minimum credit amount will be $2,000. Maximum loan amount is $350,000. Offer is not available with any other discounts or promotions. Offer cannot be retroactively applied to previously closed loans or loans already in process; offer is not transferable. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply. This is not a commitment to lend.