Leveraging debt is one of the most popular ways people expand their real estate portfolios. But is there a limit to how many mortgages you can have? Traditional financing allows you to finance up to 10 properties at a time, but there are alternative financing methods that can help you acquire more properties.
Let’s take a look at how multiple mortgages work and what your personal limits and options are when it comes to financing multiple properties.
How Many Mortgages Can You Have?
If you’re thinking about growing your real estate portfolio, there are limits as to how many mortgages you can have under your name at one time. Expanded Fannie Mae guidelines allow you to finance up to 10 properties at once.
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It’s important to note that getting up to 10 conventional mortgages is no walk in the park. Most lenders will be very cautious and will require additional paperwork before approving you for a mortgage. Having more than one mortgage poses additional risk for lenders and as a result, they may require some of the following:
- Higher down payment requirements
- Higher cash reserve requirements
- Above a 720 credit score
- Past 12 months’ rent rolls – if financing a rental property
In addition to the extra requirements, lenders will usually charge you a higher interest rate when getting additional mortgages. The higher interest is meant to act as a hedge for the additional risk the lender is taking on. Although there are more hoops to jump through – you can still qualify for additional mortgages. Let’s take a look at what each additional mortgage stage can look like.
Mortgages 1-4 Requirements
Requirements for your first four mortgages are straightforward. Depending on the lender you go with, they may ask some of the following:
- A minimum credit score of 670 – 720
- Proof of income via W2’s or 1099
- Last 2 months’ bank statements
- A loan-to-value (LTV) ratio of up to 80%
- Past 12 months’ rent rolls – if financing cash flowing rental
- Assets and liabilities statements
- Proof of mortgages on each property
- Cash reserves of 6 months to 1 year to cover all mortgage payments
As previously stated, the qualifications requirements will vary by lender and the requirements above are some of the most common when financing multiple properties.
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Mortgages 5-10 Requirements
In 2009, following the financial crisis of 2008, Fannie Mae expanded the 5-10 financed properties requirement qualifications for qualified investors. Below are the qualifications of their program.
- 25% down on a single-family home, 30% down for a multifamily home ( two-to four-unit property)
- A minimum credit score of 720
- 6 months PITI cash reserves to cover each financed property
- Zero bankruptcies or foreclosures in the last 7 years
- No delinquencies of 30 days or more on any existing mortgage
- 2 full years of tax returns (W2 of 1099)
- IRS Tax Form 4506-T for tax transcripts
- Zero late payments in the last 12 months on any mortgage
As you can see, the qualification requirements for more than four properties are stricter. It’s also worth noting that not all commercial lenders will give you the option to use FNMA 5-10 property financing since it poses an additional risk the lender may not want to take.
How Many Mortgages Can You Have on One Property?
There is technically no legal limit to the number of mortgages you can have on a single property, however, most lenders will extend a maximum of 2-4 HELOCs or mortgages on a single property.
The reason some people have more than one mortgage on a single property is in order to tap into the equity of the home to make repairs, use the cash to pay off additional debt, or other financial reasons.
How Many People Can Be on a Single Mortgage?
There is no legal limit as to how many people can be on a single mortgage, however, your lender may have their own limits in place. It’s worth noting that if multiple people going to be on the mortgage, they each have to qualify in order for it to be approved.
Most traditional lenders permit a maximum of 2 people on a single mortgage which tends to be married people. There are lenders that will permit more but they may have additional underwriting requirements.
Alternative Financing for Multiple Mortgages
If you plan on owning more than 10 properties, you can do so with alternative financing. This type of financing is reserved for seasoned real estate investors who have experience and a history of doing real estate deals.
Portfolio Loans / Blanket Loans
Portfolio loans are offered by specific lenders which are used to purchase multiple properties in a single transaction. The loan is made on the underlying properties inside the portfolio based on the income generated by the properties as a whole.
The interest rates and qualification process for portfolio loans tend to be much longer than a regular mortgage. There are also higher down payment requirements associated with portfolio loans.
Hard Money Loans
Hard money loans come from private funding sources such as hedge funds and private lending institutions. The lending criteria for hard money lenders are completely different than that of traditional mortgage lenders. The eligibility requirements are less strict and you can close in days with a hard money loan if you meet all the requirements.
However, hard money loans tend to have much higher interest rates, sometimes as high as 20% depending on your credit or level of risk associated with your deal.
A bridge loan is a short-term loan that is used to purchase a new property. It is paid off once the property is refinanced or sold off before the end of the loan term. It acts as a temporary gam between buying your home and selling your old home.
The bridge loan will provide funds for your new home purchase if you don’t have it readily available or are waiting until your property is sold for you to tap into your equity. They’re a great option for borrowers who don’t have the cash for a down payment on a new property and need a quick source of temporary financing.
Debt Service Coverage Ratio (DSCR) Mortgage
DSCR loans are not talked about enough when it comes to financing multiple investment properties. DSCR mortgages allow you to buy or refinance an investment property and use the rental income from that property to qualify for the mortgage.
The borrower’s income is not used to qualify for the mortgage. Borrowers are not required to provide their W-2s or pay stubs. This type of loan is extremely useful for borrowers if you want to scale your investment portfolio without using your personal income to qualify. Most DSCR loans require you to put down at least 20% to purchase an investment property.
Asset Depletion Mortgage
An asset depletion mortgage allows borrowers to use their liquid assets in order to qualify for a mortgage. These types of mortgages are good for borrowers who have low levels of income but considerable liquid assets. The great part about these loans is that you don’t have to sell these assets in order to qualify for the mortgage. Liquid assets can include things such as stocks, bonds, money market investments, CDs.
As you can see, borrowers have diverse options when it comes to having more than one mortgage. It’s important to carefully consider what your needs are as a borrower before you decide the type of mortgage program to use. The borrowing club reviews shares tips and details on how to stay protected as a borrower and can help you become more educated. Each program has its eligibility requirements and guidelines to follow.