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Many new real estate investors often wonder, "How many mortgages can you have at once?" While it's possible to traditionally finance up to 10 properties at a time, there are methods of alternative financing that can help you grow your portfolio even further.
Here's a guide on how to qualify for multiple mortgages at a time, as well as the pros and cons of following this type of financing strategy. Armed with this knowledge, you should have a much better idea of whether it's an appropriate strategy for you to take.
How many mortgages can you have?
If you're starting to think about expanding your portfolio, you may wonder how many mortgages you can have at one time. The short answer is that you can have up to 10 conventional mortgages in your name at once. However, in practice, experienced real estate investors know it's possible to use alternative financing methods to take on even more mortgage debt.
However, before we get into alternatives, it's important to understand the history behind the limit on the number of traditionally financed properties an investor can have at one time. Up until about a decade ago, it was only possible to finance up to four properties at once. However, in an effort to jump-start the real estate industry following the crash in 2008, Fannie Mae (OTCMKTS: FNMA) raised the number of simultaneous mortgages an investor can have to 10.
What are the qualifying requirements for taking out multiple mortgages?
However, qualifying for more than one mortgage loan is not necessarily easy. The more mortgages you have in your name, the stricter the qualifying requirements get. While every mortgage lender is different, below is an overview of the qualifying requirements you can expect to find as you add more rental property to your portfolio.
Almost every mortgage provider will be willing to finance up to four properties. In general, the process for getting loans for your first few investment properties should be similar to the one you followed when obtaining a loan for your primary residence. You will most likely need to meet the following qualifications:
- You'll need to have a good or excellent credit score.
- You'll need to have a loan-to-value ratio less than 80%.
- Any current rental properties must have a history of performing well and generating sufficient cash flow.
- If you put less than 20% down, you'll face a mortgage insurance requirement.
However, financing multiple investment properties is not exactly the same as getting a mortgage loan on your primary residence. For one thing, you'll need to be able to qualify for a conventional mortgage. Unfortunately, neither an FHA loan nor a VA loan can be used to buy an investment property. Additionally, as a real estate investor, you'll likely be given a higher mortgage rate than someone who intends to live in the property.
Once you have more than four financed properties, you must use the FNMA 5-10 Properties Program. Notably, this is where the qualifying requirements start to get stricter. While not all mortgage lenders offer this program, if you find one that does, these are the requirements:
- Must already own at least four other financed properties.
- Must make a 25% down payment for a single-family home or a 30% down payment on a multi-unit property.
- Have a credit score of at least 720.
- For a refinance, 30% equity is required, regardless of property type.
- Must not have made any late mortgage payments within the last year.
- Must not have any reported bankruptcies or foreclosures in the last seven years.
- Must provide two years of tax returns showing all rental income from all rental properties.
- Must have sufficient reserves to cover at least six months of PITI.
- Must sign a 4506-T form.
What are the pros and cons of having multiple mortgages?
Now that you know more about what it takes to qualify for multiple mortgages, it's important to look at the pros and cons of having so many financed properties. We've listed them for your consideration. Read them over so you can decide whether having multiple mortgages is right for you.
The biggest benefit of financing so many properties is that there's less of a need to have lots of cash on hand. In this case, you can expand your portfolio with only worrying about covering the down payment and closing costs for any new acquisitions.
Plus, depending on how you leverage the equity in your existing properties, you can likely cover that amount with a home equity loan or home equity line of credit (HELOC). This type of financing allows you to maximize your cash flow and put your rental income to other uses.
On the other hand, you're facing the possibility of taking on a lot of mortgage debt. If something happens and the amount of income coming in changes, it could become hard to keep making your monthly mortgage payments. If that happens, you could face foreclosure and a massive hit to your credit score.
In addition, as you get closer to the loan limit, you could be given higher interest rates by your mortgage provider, meaning you're paying more overall.
What are some alternatives for taking out multiple mortgages?
Lastly, there are alternatives to taking out multiple mortgages. If you feel like carrying that amount of mortgage debt is not right for you, here are some more options to consider.
Do a cash-out refinance
Depending on how much equity you have built up in another property, you may be able to buy property using the proceeds from a cash-out refinance. Doing a cash-out refinance involves borrowing more money than you owe on a property where you already have an existing mortgage. The difference is then given to you as cash to be used however you see fit.
Think about a blanket loan
If you already have multiple properties in your portfolio and need more room to expand, consider getting a blanket loan. A blanket mortgage is a loan secured by more than one piece of property. In this case, you could refinance any existing properties in your portfolio using the blanket loan, giving you more room to secure other properties via traditional financing.
Talk to a few portfolio lenders
Finally, you could also consider taking out a portfolio loan. Unlike a conventional loan, which will eventually be sold to a loan servicer, portfolio loans are kept in house with the lender. As a result, these loans often have more flexible qualifying standards than a traditional mortgage and approval is often asset-based, as opposed to being based off of your financial profile.
The bottom line
While it's possible to have up to 10 simultaneous mortgages at a time, this type of financing is not right for every borrower. Before going this route, take some time to weigh the pros and cons and to speak to your mortgage provider. They can look at the specifics of your financial situation and give you individualized advice on the best way for you to grow your portfolio.
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