Real Estate Investing: How Many Mortgages Can You Have?
Melissa Brock7-minute read
May 12, 2021
How many mortgages can you have? Whether you want to expand your real estate investment portfolio or prefer to expand your personal vacation home count beyond your primary residence, you might wonder how many mortgages you can take on.
Buying multiple properties can offer you a great way to increase your assets and make money, particularly if you make excellent decisions along the way. However, you may want to carefully consider your ability to take on multiple mortgages and assess your experience level before you take the plunge.
Ready to learn more about having multiple mortgages? Take a look at our comprehensive overview so you get an idea of the number of properties you can buy and your mortgage options.
How Many Mortgages Can You Have?
Fannie Mae guidelines increased the number of allowed conventionally financed properties from four to 10.
However, while you can qualify for more, you may face some challenges that go along with the process of getting up to 10 conventional mortgages. First of all, lenders may seem more cautious about signing off on that many mortgages and see you as a greater lending risk. You may experience lender reluctance to allow you to get more than one mortgage at a time. You may also face higher down payment requirements, higher cash in reserve requirements and higher credit score requirements. You may also have to deal with higher interest rates on mortgages when you have multiple properties.
However, remember that you can still get multiple mortgages – you might find the qualifications trickier. Read on to learn how to get the job done.
Qualifying For Your First Four Mortgages
When you want to qualify for financing on your first four mortgages, your lender may ask you to fulfill certain requirements. Your lender may require you to have the following:
- A good to excellent credit score – approximately 670 to 739
- A loan-to-value (LTV) ratio up to 80%
- Cash flow availability from current rental properties
- Proof of income from W-2s or tax returns
- Statement of assets and liabilities
- Financial statements on any existing investment properties
- Proof of existing conventional mortgages
Your lender may have other requirements as well. Ask for more details on how to meet them.
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Qualifying For Mortgages Beyond Four
Lenders impose stricter qualifications when you want to qualify for more than four mortgages.
In fact, underwriting guidelines tighten considerably when you want more than four mortgages. You may need to provide proof of some or all of the following items:
- 25% down payment on each investment property
- 30% down on duplexes, triplexes and quads
- Minimum credit score of 720
- No late mortgage payments on any property
- 2 years of tax returns showing all rental income from all properties
- 6 months of cash reserves for principal, interest, taxes and insurance (PITI) coverage on all properties
Ask your lender for any other guidelines you need to finance loans five through 10.
Meeting The FNMA 5 – 10 Financed Properties Qualifications
Fannie Mae unveiled its FNMA 5 – 10 financed properties qualifications during the housing crisis for highly qualified investors. Qualifications for this program include:
- 720 credit score
- 25% down on a single-family home, 30% down on a multifamily home (which could involve a two- to four-unit property)
- Have the funds needed to cover PITI on all properties
- 2 years of tax returns showing rental income
- No bankruptcies and foreclosures or delinquencies of 30 days or greater on a mortgage
- History cannot indicate any late mortgage payments in last year and bankruptcies or foreclosures in last 7 years
- 4506-T form, filled out for tax purposes
You may have to shop around for the right lender; not every lender will offer you the option to tap into a FNMA 5-10 financed property due to potential risks to the lender.
Other Ways To Finance Multiple Mortgages
As a real estate investor, you can seek out several ways to finance multiple mortgages beyond tapping into conventional loans. Take a look at hard money loans, blanket loans, portfolio loans and cash-out refinancing loans below.
Hard Money Loans
Hard money loans do not come from traditional lenders. Instead, hard money loans come from private funding from individuals and companies. Lenders often look for properties that will not stay in the market for long and that have good selling potential.
You can also call a hard money loan a secured loan. In other words, this means that 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.
Hard money loans don't involve as strict of an approval process. You, like many borrowers, might turn to this option if you can't get approval for a conventional loan. In addition, you can close on a hard money loan in just days, as opposed to the amount of time it takes to get a conventional mortgage (about a month).
Hard money loans often come with high interest rates, often 8% – 15%, compared to the low rates you can get with a conventional loan.
Hard money loans may also require a large down payment because lenders may only want to finance 70% — 80% or less of the property value. Therefore, you may need considerable cash on hand in order for a hard money lender to take you seriously.
Nevertheless, hard money loans can offer real estate investors and house flippers the quickest way to buying multiple properties.
Blanket mortgages allow you to finance multiple properties under the same mortgage agreement. These mortgages work well for real estate investors, developers and commercial property owners. Blanket mortgages allow for an efficient and often less expensive buying process. Another attractive reason to get a blanket mortgage: 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.
In addition, buying properties under a blanket mortgage means that all properties get the same financing terms. Similar to hard money loans, the lender offers collateral for properties in exchange for a blanket mortgage. Defaulting on the loan could mean risking your existing properties.
Take note that you may face strict requirements when you want to get a blanket mortgage. In addition, you may not use a blanket mortgage to purchase properties in multiple states because of the different rules that exist from state to state. Finally, you'll pay much higher closing costs on a blanket mortgage compared to a conventional mortgage.
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 the specific underwritten standards for borrowers.
Very similar to a hard money loan in terms of wait time, a portfolio loan will significantly reduce the amount of time that you spend waiting to get financing for your properties.
A portfolio loan can end up being more expensive than an equivalent conforming loan, including higher interest on mortgage rates or a prepayment penalty charge if you pay off your loan early. A reason for these higher costs includes the fact that your lender can't sell the loan and takes on the entire risk of the portfolio loan.
Borrowers must also offer proof of ample assets and high income and offer a high down payment.
You may also want to consider a cash-out refinance, a type of mortgage refinance, which taps into the equity you build up with your other properties over time. You get a lump sum in cash in exchange for taking on a larger mortgage when you borrow more with a new property.
When you get a cash-out refinance, you pay off an old mortgage and replace it with the new one. Here's how this works: Let's say you still 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 equity and put it toward a new mortgage.
Your new mortgage would be worth more, depending on how much cash you need to invest in more rental properties. Your lender will give you the cash you require to buy the new property a few days after you close on your cash-out refinance.
Managing Multiple Mortgages
As soon as you have multiple mortgages to make payments toward, you may want to come up with a good system for managing them properly. In fact, you may not want to rely on your lender to keep track of how much you owe, especially if you opt for a nontraditional lending option. You may want to "go deep" and know your principal balance for each property, payoff timeline and payment dates for each property forward and backward.
Furthermore, you may not have the same lender for all of your properties, which can require further organization. You may not even have the same mortgage payment dates for each lender. You may want to stagger your payment dates or have them all due on the same day – whatever you prefer.
The Bottom Line On Multiple Mortgages
Think you want to take on a real estate investment strategy for multiple properties? Before taking this on, you should consider your experience level and the risk to your assets and cash.
Fannie Mae increased the number of allowed conventionally financed properties from four to 10, but you might not want to go the conventional loan route. You can look into multiple lending options to invest in more rental properties, including hard money loans, blanket loans, portfolio loans and cash-out refinancing options.
Lenders may cite risk of default as a factor for not lending money for multiple properties. However, to make up for that potential risk, lenders may require larger down payments and higher interest rates.
Finally, determine a management method that's right for you once you have multiple mortgages to manage. You may want to take a more proactive approach to paying off your mortgages instead of relying on your lender's portal and amortization schedule. You can also tap into other software management tools and other available resources to help you manage cash flow, taxes, insurance and more.
The bottom line: Structure your payment dates to suit your needs but make your payments on time so you can qualify for more mortgages in the future. If you need to onboard other people to help you manage your mortgages, you may want to do that.
See What You Qualify For
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