How Many Mortgages Can You Have?

Article Summary:

Rental properties can be a great form of real estate investing and potentially bring in a lot of cash through rental income. Maybe you’re interested in acquiring office buildings, another type of commercial real estate, or possibly you want to look into residential properties such as single-family homes and multi-unit buildings. Whichever way you decide to go — maybe a little of both — there’s a lot to think about and several ways to go about achieving your goals.

You’ve got one or two investment properties and they’re doing really well. You’ve made some extra cash from rental income and think maybe it’s time to acquire a few more properties. So exactly how many mortgages can you have? We’ll get into that, but first, keep in mind that real estate investing rules and requirements can be flexible.

The traditional lending process says you can finance up to 10 properties in your name. But there are ways around that if you want to become a more serious investor. Read on to learn how to acquire multiple loans from traditional lenders as well as other, less conventional, ways of growing your real estate portfolio.

If you haven’t yet bought your first property, one of the first questions you should answer is just how much mortgage can you afford? Given your current resources and income, what can you afford to lay out every month to pay for that first property? Learn all you need to know in this detailed breakdown.

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How many mortgages can you have?

It used to be that you could only have up to four traditional mortgages at one time. The housing market crisis of 2008 changed all that, when Fannie Mae increased that number to 10 as a way to help rev up the real estate market and recover from the Great Recession. This was important news for real estate investors interested in expanding their portfolios further.

But it’s not quite as easy to qualify for multiple mortgages as it is to get just the one for your primary residence. For one thing, you must be able to qualify for conventional loans. Loans backed by the government, such as FHA or VA loans, cannot be used when purchasing investment properties. Traditional loans also typically carry higher interest rates than mortgages where the buyer is going to live in the home. Plus, the more properties you buy, the stricter requirements you face when trying to secure these mortgages. And, of course, you need to have the extra money on hand for these ventures.

Your first four mortgages

Requirements for getting your first few mortgages are fairly similar to acquiring that first mortgage on your own residence. You must have a good credit score; the loan-to-value (LTV) ratio must be less than 80%; the properties must have a history of doing well financially; and you will need to pay for mortgage insurance if your down payment is less than 20% of the loan.

All these things being true, many traditional lenders are willing to give you mortgages on up to four properties. Beyond that, you are looking at even stricter requirements for growing your real estate investment portfolio. But if your current properties are doing well and showing good cash flow, that can work to your advantage as you strive to secure additional mortgages.

If you’re ready to start looking for those first four mortgages, SuperMoney’s advanced search tools and unbiased real-customer review are here to help.

Mortgages beyond four

If you are looking to take out mortgages on more than four properties — up to a maximum of 10 individual mortgages — you will likely need to go through the FNMA 5–10 properties program created by Fannie Mae in 2009. You basically get your loan through a traditional mortgage broker and then Fannie Mae agrees to assume the risk. Keep in mind that not all lenders offer this program, so you may need to shop around to find out who will.

The requirements to get these mortgages are much stricter, making it more difficult for real estate investors to broaden their portfolios. At a minimum, buyers will need to provide the following items to qualify for the additional mortgages.

FNMA 5–10 financed properties qualifications

  • Proof of ownership of four other properties.
  • A minimum credit score of 720.
  • Down payments of at least 25% for single-family homes and 30% for multi-unit properties.
  • Show no late mortgage payments for at least one year.
  • Have no reported foreclosures or bankruptcies within the last seven years.
  • Two years of tax returns, including income from rental properties.
  • At least six months of savings to cover PITI (principal, interest, taxes, and insurance) for all properties.
  • Must sign 4506-T form (a request for transcript of tax return).

Other ways to finance multiple mortgages

Real estate investors with experience know there are ways around the confusion and costs of managing multiple mortgages.”

So to answer the question: how many mortgages can you have? Maybe the answer isn’t to have 10 different mortgages on 10 different properties. You could potentially have a lot more real estate investments than that, with fewer individual mortgages, by trying some other options. Real estate investors with experience know there are ways around the confusion and costs of managing multiple mortgages. Let’s take a look at some of the alternatives to going through a regular mortgage lender.

Hard money loans

Hard money loans are a way of circumventing traditional mortgage lenders. This cash comes from private money lenders and companies willing to put their money into your investment property. It should be noted that those who give out private money loans often prefer to work with experienced investors.

Hard money terms

These types of loans are generally for shorter terms than a conventional mortgage — often private money lenders don’t want to tie up their cash for a lengthy period of time. They are also secured loans with the property as collateral. If you default on a hard money loan, the lender takes possession of the property.

Hard money cautions

Hard money loans are not without their drawbacks. They often come with higher interest rates, and you may have to put up significantly more for the down payment. However, they can also be faster and easier to acquire. Oftentimes, especially when dealing with experienced real estate investors, private lenders are more concerned with the market value and financial performance of the property than with your tax returns and credit history.

Hard money conclusion

The bottom line for hard money loans is that they can be a great way to get around a conventional mortgage quickly and easily, but you definitely need to be prepared for a loan with a shorter term. Still, these loans can be great if you need quick cash or you’re a house flipper.

Blanket loans

Blanket loans can be a less expensive way to finance multiple properties by putting them all under one larger mortgage. Perhaps you are looking to expand your investment portfolio but you need some room to grow. In that case, a blanket loan might be the way to go.

These loans are most common for commercial real estate like shopping centers and office buildings, but they can also be an appropriate avenue for residential real estate investors looking to cover multiple properties. To illustrate, let’s say you own five houses with mortgage loans of $200,00o each. If you bundle them together with a blanket loan, you will only have one mortgage of $1 million This could free you up to purchase other investment properties using more traditional lending.

Know the rules in your state. Be sure to talk to your mortgage lenders about different state regulations for this kind of loan, as you may might only be able to include properties within the same state.

Portfolio loans

Portfolio loans are another option for investors, and they differ in that they are kept in-house by the original lender, whereas conventional loans are usually sold to the secondary mortgage market. Like hard money loans, portfolio loans are often faster and easier to get, and mortgage approval may rely more on your assets and income than your credit history. These can be particularly attractive loans for buyers looking to purchase rental properties, who may carry imperfect credit scores but have high incomes.

These loans might be easier to get, but because lenders can’t sell the loan, they are taking a greater risk by keeping it in-house. This means you’re looking at higher interest rates and possible penalties for paying the loan off early.

Cash-out refinancing

If you find yourself low on cash reserves, you might want to contemplate a cash-out refinance. Consider this option if you have a lot of equity in one (or more) of your existing properties. You can refinance that property for more than you currently owe and receive the difference in cash, which you can then use however you want. Perhaps you need to do some repairs on another house before you sell it, or maybe you take that money and roll it right back into a new investment property.

Let’s look at an example. You have a $500,000 mortgage on a house. So far, you’ve paid off half of it. If you refinance that loan for the full amount, you can get a percentage of that $250,000 in cash to do with as you please. As a side benefit, you could end up with a lower interest rate and monthly payment on your original loan. As with any investment strategy, a cash-out refinance can be risky, but if you can put that money to work for you right away, it just might be worth it.

Managing multiple mortgages

Depending on how many properties you own, you might want to consider hiring a property manager, or at least an assistant. There are a lot of aspects to consider, like when each mortgage payment is due. If they’re all due on the first of the month, that simplifies things. Or maybe it doesn’t if it’s a problem for you to come up with all at once. You might want to talk to your lenders about the possibility of staggering the dates so half are due on the first and the other half are due on the fifteenth, for example.

Other issues to think about are how you collect rents from your investment properties or how best to handle routine (or unexpected) maintenance. Ask yourself if you have enough cash reserves for emergencies or contingencies. Really crunch those numbers to see where you might be lacking in certain areas. Managing multiple mortgages and properties can be a full-time job in and of itself.

FAQ

Is there a limit to how many mortgages you can have?

Technically, the limit is 10 mortgages, but by utilizing a variety of loans and investment strategies, experienced real estate investors can own many more than 10 individual properties. But it’s important to go into the process armed with the knowledge to make the best decisions for you.

Is having multiple mortgages bad?

It can be if you’re not careful or something goes drastically wrong. Say you own just your primary residence, and you decide to buy a small apartment building to earn some rental income. You have a healthy income from your regular job, and some savings, so it seems like a good time to make the investment. But then a year later, you lose your job, or get seriously injured or sick. Pretty quickly that second mortgage seems like a bad idea, so you sell.

But that’s the thing: risks are everywhere. If you are extremely risk-averse, that could put a limit on how many properties you can acquire and manage. But multiple mortgages can be a great way to make money. If you do it wisely, it’s possible those investment properties might even be able to see you through that crisis. The question is, can you learn to live with the inherent risks?

How can I buy multiple properties with one mortgage?

Consider a blanket loan. These real estate mortgages are designed for investors to purchase multiple properties at the same time under a single mortgage. Because all of the properties fall under one mortgage application, it simplifies the process and can help to lower costs and save time.

Does a second mortgage hurt your credit?

Given the topic of this article, what this question is asking could be unclear. What people normally mean by “second mortgage” is a junior loan taken out on an already mortgaged property. As a real estate investor, the most likely reason you’ll get this type of second mortgage will be to help finance your purchase of another property. Will this hurt your credit? No. Not unless you mismanage it and are late on payments, just like your primary mortgage.

In the context of this article, you might also be asking whether getting a first mortgage for your second property — making it the “second mortgage” in your personal “mortgage collection,” so to speak — will hurt your credit. In other words, you’re asking if a second first mortgage will hurt your credit. Again, not unless you mismanage it and make late payments.

As a rule, responsible use of credit will never harm your credit. Only misusing it will harm you. As long as you only take out loans you can afford, you should be in good shape.

Key takeaways

  • You can invest in more than 10 rental properties through the use of different types of loans and investment strategies.
  • If you’re short of money to invest, a cash-out refinance might be a great way to get your hands on some quick cash.
  • If your credit isn’t great but you have a lot of assets and a high income, look into hard money or portfolio loans.
  • Real estate investing can be a great way to make a little extra money or, with some experience and creativity, a change to your way of life.

Growing a real estate portfolio without limit

So, how many mortgages can you have? With some creative financing, the sky’s the limit, really — if you know what you’re doing and invest wisely. Traditional mortgages have their place, but there are many other options to ponder as you grow your real estate portfolio.

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