Are you a real estate investor looking to expand your portfolio? Unless you want to pay cash for the next few properties you purchase, it’ll be necessary to borrow the funds. There’s a limit on the number of mortgages you can have, but it’s relatively generous if you’re just starting out.
Is It Possible to Have Multiple Mortgages?
Yes, it’s possible to have multiple mortgages. However, be mindful that once you have several, it can become more difficult to find lenders willing to do business with you.
How Many Mortgages Can You Have At Most?
Fannie Mae permits up to 10 conventional home loans per borrower. However, most traditional lenders cap this figure at four to protect their interests. For the latter, you’ll generally need a good or excellent credit score, a loan-to-value (LTV) not exceeding 80 percent and a portfolio of existing investment properties that operate profitably.
You may be able to secure additional funding through private lenders offering portfolio loans, hard money loans or blanket loans.
How to Qualify for Up to Four Mortgages
Below are some general eligibility criteria you’ll need to meet to secure your first four mortgages:
- Credit score: Most lenders will check your FICO score, which ranges from 300 to 850. You’ll generally need a credit score that’s rated good, very good or exceptional – or between 670 and 850 – to qualify for your first four mortgages.
- Down payment: Prepare to make a down payment of at least 20 percent on each loan you take out.
- Loan-to-value (LTV) ratio: Your LTV ratio should not exceed 80 percent.
- Payment history on current mortgages:
- Cash flow: The lender will want proof of cash flow from the rental properties you currently own (if applicable).
- Documentation: You’ll need to provide recent tax returns or W-2s as proof of income, along with asset and liability statements and financial statements on other investment properties in your portfolio.
This list is not all-inclusive. Be sure to inquire with the lender you’re considering to determine if there are other guidelines they follow.
How to Qualify for Over Four Mortgages
If you’re looking to get more than four mortgages, here’s what lenders are looking for:
- Credit score: You’ll need a FICO score of at least 720.
- Down payment: Most lenders require a 25 percent down payment for each investment property you acquire. It increases to 30 percent for duplexes, triplexes and quadruplexes.
- Payment history on current mortgages: It’s vital that your payment history on the mortgages you currently have is squeaky clean.
- Cash reserves: You should have at least six months of cash reserves handy for the properties you currently own and are looking to acquire. (To compute this amount, add up the current mortgage payment, including principal and interest, and don’t forget to add in the amount you pay for homeowners insurance and property taxes).
- Documentation: The lender will most likely request that you provide tax returns from the two most recent years that reflect earnings from rental properties in your portfolio.
Consult with the lender to ask if there are any additional requirements you must adhere to before qualifying for more than four mortgages.
Funding Options
To get multiple mortgages, you’ll need to choose the right lender and loan program. Below are some popular options amongst real estate investors.
Fannie Mae 5-10 Properties Program
If you’re looking to take advantage of this funding program that allows investors to finance between five and ten properties, here’s what you’ll need to qualify:
- Credit score: A minimum credit score of 720 is required.
- Down payment: You’ll need a down payment of 25 percent for each single-family home you finance or 30 percent if you’re looking to buy multi-family or two- to four-unit properties.
- Cash flow: It should be sufficient enough to cover the monthly mortgage payments, including the principal, interest, taxes and insurance, on all your properties.
- Payment history on current mortgages:
- Credit history: Your credit history should be free of late mortgage payments in the past year, foreclosures and bankruptcies.
- Documentation: The lender will likely request a completed Form 4506-T (Request for Transcript of Tax Return) and your two most recent tax returns that reflect rental income generated by your current properties.
Portfolio Loans
Many home loans are originated by one lender and sold off shortly after closing to another lender. This isn’t the case with portfolio loans, though, as they remain with the original lender for the life of the loan. As a result, they’re a more costly option than conventional loans, and some come with early repayment penalties. Still, they could be worth considering if you earn a hefty income and have a sizable amount of income to make a large down payment and maintain adequate reserves.
Hard Money Loans
Available through individuals and private lenders, hard money loans are another alternative for real estate investors. Like traditional mortgages, these loan products use the property as collateral and falling behind on loan payments could result in foreclosure. Plus, they often come with steep interest rates and down payment requirements since they’re riskier. But there’s an upside – this loan product may be more accessible than a conventional mortgage if the lender’s guidelines are flexible.
Blanket Loans
These mortgage products are attractive to many real estate investors because they allow you to finance several properties using a single loan. So, you’ll enjoy a more streamlined funding process, and all the properties financed under the blanket loan will have the same terms. Blanket loans can only be used to buy properties in one state, though, since each state has its own set of guidelines. Furthermore, you can expect steep closing costs, and defaulting on the monthly mortgage payments puts you at risk of foreclosure since blanket loans are also secured and use the properties you finance as collateral.
Pros of Having Multiple Mortgages
There are some key benefits of having multiple mortgages:
- You can expand your property portfolio without having to pay cash for the properties.
- You’ll build equity, which could pave the way for securing home equity loans and home equity lines of credit (HELOCs) to use for future purchases.
- You can significantly increase your cash flow much quicker than you would if you paid cash for each income-producing (or rental) property.
Cons of Having Multiple Mortgages
Unfortunately, there are also drawbacks to consider:
- Your financial health and credit rating could take a hit if you’re unable to make the monthly mortgage payments.
- Your borrowing costs could be higher as having multiple mortgages may perceive you as a riskier borrower and charge you more in interest. (In some instances, a much higher down payment will also be required).
- You could lose your properties if you default on the monthly loan payments since they’re used as collateral to secure the mortgages.
Things You Should Consider When Getting Multiple Mortgages
Do You Have a Steady Income Source?
Is your monthly income enough to cover more than one mortgage payment each month? Can you comfortably make the payments, or does it mean significantly cutting back other expenses just to get by?
Ideally, you should have a steady stream of income that’s more than enough to cover housing costs before applying for additional mortgages. If not, it may be in your best interest to steer clear of applying for another mortgage until you’re more financially stable.
Do You Have Other Assets?
As mentioned above, you’ll likely need to meet the lender’s cash reserve requirements to be eligible for multiple mortgages. The exact amount you’ll need varies, but aim for at least six months of PITI (principal, interest, taxes and insurance) to be a good candidate for funding.
Have You Checked Your Credit?
A strong credit rating is also vital when you’re looking to get approved for multiple mortgages. That said, it’s pertinent that you check yours with the three credit bureaus – Experian, TransUnion and Equifax – to know where you stand. The lender will use the middle score when reviewing your application. So, if you have a 720, 760 and 705, the lender will go with 720 to make a lending decision.
Can You Manage Multiple Mortgages?
It can be overwhelming to juggle monthly mortgage payments and other housing-related costs. So, it’s vital that you have a system in place to manage the home loans you currently have. If not, you’ll need to implement one before applying for an additional mortgage to get a better handle on the cash flow for your properties.
Should You Get Another Mortgage?
Although there are funding options available if you’re looking to take on another mortgage, you’ll have to assess your financial situation to decide if it makes financial sense. If your credit health is up to par and you have a cushion of reserves along with a sound investment strategy, moving forward with applying for another mortgage to increase the value of your portfolio and your earnings could be ideal. Otherwise, you may be better off holding out until your finances are in order and you have a strategy for the next set of income-producing properties you acquire.
