Real estate investing: How many mortgage can you have?

Whether you want to expand your real estate investment portfolio or expand your personal vacation home count beyond your primary residence, you might wonder how many mortgages you can take on.

Buying multiple properties can be 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 juggle multiple mortgages and assess your experience level before you take the plunge.

How many home loans can you have?

For second homes and investment properties, you can have up to 10 home loans. The Federal National Mortgage Association (FNMA), or Fannie Mae, sets the limits for the number of mortgages you can have based on the type of home loan you use. For primary residences, there isn’t a limit on conventional mortgages. For primary residences with a HomeReady^® loan, however, the limit is 2.

It’s important to note that although there is no limit on the number of conventional loans you can have on your primary residence, you can typically only own one primary residence at a time. It is common to take out a second mortgage in the form of a home equity loan, but people usually do not take out more than two home loans on the same primary residence at the same time.

Therefore, the fact that there is no limit for primary residences does not tend to result in numerous mortgages being taken out under this rule.

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 that you have

• For 1 – 4 second homes or investment properties: This requires 2% of the unpaid principal balance (UPB) plus 2 months of mortgage payments, including principal, interest, taxes, insurance and association fees (PITIA).
• For 5 – 6 second homes or investment properties: This requires 4% of the UPB plus 6 months PITIA.

Your lender may also ask you to meet certain requirements that include:

• A credit score in the 620 – 680 range
• A loan-to-value ratio (LTV) 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 on any existing investment properties
• Proof of existing conventional mortgages

Qualifying for 7 – 10 mortgages

Fannie Mae sets higher limits 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 UPB plus 6 months PITIA.

Lenders may also impose stricter qualifications when you want to qualify for 7 – 10 mortgages.  They are likely going to request a 15% – 20% down payment on each investment property and up to 25% down on duplexes, triplexes and quads.

Alternate ways to finance multiple investment properties

As a real estate investor, you can try several ways outside of conventional mortgage loans to finance investment properties. These loans may have some benefits compared to conventional loans, but they also present specific challenges.

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 good selling potential.

A hard money loan is also 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 use a hard money loan, 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 a high interest rate of 8% – 15%, compared to the lower rate you can get with a conventional loan.
• May require a larger down payment because lenders may only want to finance 70% – 80% or less of the property value.

Nevertheless, 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. 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 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, you should consider 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.

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 the specific underwritten standards for borrowers.

Very similar to a hard money loan in wait 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 on mortgage rates or a prepayment penalty charge. 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 offer a high down payment as well as proof of ample assets and high income.

Cash-out refinancing

You may want to consider a cash-out refinance, a type of mortgage refinance that taps into the equity you build up with your other properties over time. You get a lump sum of cash in exchange for taking on a larger mortgage when you borrow more with a new property.

With a cash-out refinance, you pay off an old mortgage and replace it with the new one. 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 home equity and put it toward a new mortgage.

In the case of a cash-out refinance, your current mortgage is rewritten to be worth more, but how much more depends on how much cash you need to take out to invest in other rental properties. A few days after you close on your cash-out refinance, your lender will give you the cash you require to buy the new property.

What is the maximum number of mortgages you should have?

While the flexibility to have multiple mortgages may be a positive, you could face some challenges along the way. First of all, lenders may be reluctant to sign off on that many mortgages – or even more than one mortgage – and they may see you as a greater lending risk.

You may face higher down payment, cash-in-reserve and credit score requirements. You also might have to deal with higher interest rates on mortgages when you have multiple properties.

Qualifying for multiple mortgages at once can be complicated, but it’s possible in some cases.

What to know about managing multiple mortgages

As you grow your real estate portfolio and have multiple mortgages to pay, you’ll want to devise a system for managing them properly. In fact, you might 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 keep close track of each property’s principal balance, payoff timeline and payment dates.

You also might not have the same lender for all of your properties, requiring further organization. Additionally, you may not even have the same mortgage payment dates for each lender. You have the option to stagger your payment dates or make sure they’re all due on the same day – whichever you prefer.

The bottom line: You can have multiple mortgages

Fannie Mae makes it possible for borrowers to potentially finance up to 10 mortgages at the same time. This may be a great option if you have a real estate investment strategy focused on owning multiple properties.

However, it’s also important to understand the added financial responsibilities that come with having more than one home loan. Keep this in mind as you consider expanding your investment portfolio.

Do you think managing multiple homes or rental properties could be right for you? See what you qualify for and start the mortgage application process today.