Funding is a significant challenge real estate investors face when acquiring investment properties. Fortunately, conventional mortgage from several mortgage lenders came into the scene and turned things around. Therefore, with a specific down payment, most individuals have a shot at purchasing an investment property.
However, certain property investors may wish to expand their assets and finance multiple properties. With a mortgage already in place, an individual may wonder, can you have two mortgages at once? Is there a need to seek other financing options, or will the ambition just crumble due to inadequate finance?
The concerns above raise the question, how many mortgages can you have? By reading this article, you’ll get firsthand information on the number of mortgages you can have. As a bonus, you’ll have exposure to alternative financing methods if you wish to add to your existing investment properties.
Individuals delving into real estate investing may require a loan to help them purchase a property. This loan goes by the term mortgage, a loan for purchasing or maintaining a home, land, or other rental properties. Getting mortgages is a clever real estate investment strategy.
With a mortgage, real estate investors avoid paying for the property upfront. They pay just the down payment of the property they wish to acquire. The mortgage lenders cover the rest of the costs necessary to close the real estate deals.
Mortgages typically run for 15 or 30 years though there are 5 and 40 years duration mortgages. When the duration is longer, the payment can be spread out into smaller amounts, increasing the interest paid over the loan duration.
In accessing a mortgage, an investment property investor seeks out a mortgage lender and applies for a mortgage. However, the lender will have to look for requirements like a minimum credit score, tax returns, and down payment before approving a conventional mortgage. Suppose you have a low credit score, you can boost it using a rapid rescore.
An interest rate applies to the loan. Both parties agree on a regular payment and an expected time frame to complete the payment.
It is essential to understand that these loans aren’t just given out; the property in question serves as collateral. This act protects the lender’s interest, shielding them from loss should the borrower default on their financial obligation. In a situation where the borrower stops paying the mortgage, the lender can foreclose on the property.
Mortgages come in different types. The common ones include:
- Fixed-rate mortgages
- Adjustable-rate mortgage
- Interest-only loans
- Reverse mortgages
Can You Have Two Mortgages at Once
Financing multiple properties raises the issue of needing multiple mortgages. Since a mortgage covers a particular property, to buy another one, you’ll need a new mortgage. Nevertheless, is it possible to have more than one mortgage? If it were possible, how many mortgages can you have?
The answer to the questions is yes. The Federal National Mortgage Association, also known as Fannie Mae, raised the number of mortgages per real estate investor from four to ten. It increased this limit in 2009 as part of a plan to aid recovery from the great recession. Therefore, the limitations to accessing many conventional mortgages are no longer in existence.
Consequently, this enabling move by Fannie Mae makes it possible for real estate investors or commercial property owners to acquire more properties by taking many mortgages.
Challenges to Acquiring Many Mortgages
The extension to the limit on the number of mortgages possible implies that many commercial property owners will qualify for mortgage loans. However, this doesn’t guarantee speedy access to the mortgages. There are challenges to getting additional traditional mortgages which intensify with every new mortgage loan request.
Some of the challenges include:
- Lenders could perceive you as a high lending risk and become more reluctant
- Down payment requirements increases
- You might need higher cash reserves
- Elevated interest rates often apply
- You’ll need towering credit scores
Despite all these barriers, it’s not impossible to access more than one mortgage to acquire more properties.
Benefits of Multiple Mortgages
- Reduced cash-on-hand requirement to obtain multiple mortgages
- Makes it easy to set up systems to take care of your payments over time
- Enables a streamlining of operational costs
- The equity built up in one home can be used to pay for another through a home equity loan
Downsides of Multiple Mortgages
- Submerges real estate investors in significant debt
- Mortgage payments must be made even if you lose your source of income
- Considerable risk of foreclosure and the following decline in credit score
- Higher interest rates with traditional lenders
Qualification Requirements for One to Four Mortgages
With much clarity on the question, “how many mortgages can you have?” it is pertinent to know the requirements for getting those mortgages.
Being eligible for your first four mortgages is often pretty easy. Your lender will list requirements you’ll have to satisfy before giving approval, such as:
- A credit score between 670 and 740
- Liabilities financial statements
- Proof of income or tax returns
- Financial statement on every existing property
- Evidence of existing conventional mortgages
- Possession of about 80% loan-to-value ratio
Qualification Requirements for Mortgages Greater Than Four
Requirements are more stringent if you’re aiming for more than four mortgages. The implication is that you must demonstrate to your mortgage lenders that granting the mortgage is not a financial risk they should be wary of undertaking.
Conditions real estate investors must meet to qualify for mortgages greater than four are as follows:
- A 25% down payment on each property
- A 30% down payment for multi-unit properties like a duplex, triplex, and quads
- Tax return for the last two years showing rental income for your existing properties
- A minimum credit score of 720
- A cash reserve enough to offset mortgage payments for 6 months
- Absence of late mortgage payments
- Have no foreclosures or bankruptcies within the past seven years
Managing Multiple Mortgages
Getting multiple mortgages isn’t the end of the journey. How do you manage these mortgages to avoid confusion and poor financial judgment?
Keeping track of how much you owe is essential instead of relying on your lender. Therefore, you’ll need a solid organizational system. This system will help you do the following:
- Keep an eye on your payment schedule and make necessary updates
- Put your repayment schedule in one day
- Tell you how much you have paid back and the balance
- Keep track of all your lenders
With a sound organizational system, you can spot a need for mortgage recast and manage your mortgages better.
Additional Means of Accessing Multiple Mortgages
Purchasing properties is a financially intensive undertaking. You’ll need funds whether you’re just increasing your rental properties or getting a vacation home in addition to your primary residence.
As such, there are alternative financing methods to conventional loans. An excellent real estate agent can point you in the right direction.
Notable options include:
1. Fannie Mae 5 – 10 Financed Properties Program
Following the national housing crisis, Fannie Mae introduced its 5-10 financed properties program in 2009. The aim was to empower highly qualified real estate investors in the hopes that they’ll assist in reviving the economy.
Initially, the program had a limit of four properties but was later extended to five to ten properties. Under its operation, conventional lenders grant loans to investors while Fannie Mae bears the risk.
To qualify for the program, interested investors need to meet the following criteria:
- Have a minimum credit score of 720
- Ability to deliver 25% and 30% down payments for single-family homes and multi-unit properties, respectively
- Availability of funds to cover principal, interest, taxes, and insurance (PITI) for all properties
- Two years of tax returns showing rental income of your existing investment properties
- Absence of bankruptcies, delinquencies, and foreclosures of 30 days or more on mortgages
- Zero histories of late mortgage payments and bankruptcy in the last seven years
- Have a completed 4506-T form for tax purposes
2. Hard Money Loans
Due to their fast timelines, hard money loans offer investors relatively quick access to loans. They are the go-to when efforts to secure a conventional loan fail. Unlike conventional loans that take about 30 days to close, you can obtain hard money loans in a few days or weeks. Also, this loan type doesn’t come from traditional lenders. Instead, they come from private money lenders.
Furthermore, the less rigorous approval process distinguishes a hard money loan from conventional loans. This ease of approval is possible because the lenders require the property as collateral which they will foreclose if you fail to make mortgage payments; hence they’re known as secured loans. The lenders also favor investors with properties with a good selling potential.
Despite these exciting features, they attract higher interest rates between eight to 15%, exceeding that of conventional loans. So you’ll end up paying back a lot more than you would have if you got a conventional loan. Real estate investors need to consider this feature before embarking on the process.
Furthermore, investors need decent cash since the down payments required for hard money loans are high. You’ll often find lenders who want to cover only 70 to 80% or less of the property value. In this case, you’ll have to fund the remaining percentage out-of-pocket.
3. Cash-out Refinancing
Real estate investors utilize cash-out refinance when they want to purchase new properties or refinance a mortgage. Equity builds up with your existing properties as time passes and this equity can be channeled into the purchase of another property.
When you take a more extensive mortgage by borrowing more with a new property, you will receive a large sum of money. The money can serve as a down payment for accessing traditional mortgages, hard money loans, etcetera.
Many investors like cash-out refinancing because of its fast timeline.
4. Portfolio Loans
Generally, with most mortgages, the lender generates the loan and sells it to third parties. Hence, they raise more money to lend to other borrowers. Nevertheless, with portfolio loans, things are different.
The lender, usually traditional lenders, generates this type of loan and keeps it in their portfolio instead of selling it to secondary companies. As a result, they bear 100% risk should the borrower default in paying back.
Because lenders bear the entire risk, they set their own requirements for accessing a portfolio loan. They decide on an acceptable credit score and the amount of money to give each borrower. This system also makes portfolio loans accessible and a go-to for most borrowers.
However, portfolio loans attract high-interest rates exceeding what conventional mortgages would ask for. There’s a high prepayment penalty rate for borrowers who pay off their loans early.
Additionally, you’ll need to show proof of worthwhile assets and income and put down a hefty down payment. All these requirements are because lenders bear the entire risk if borrowers default in making payments.
5. Blanket Loans
Opting for a blanket loan allows you to access several mortgages under the same financing agreement. This implies that you can get the same interest rate for different properties and have all your payment in one place. It also supports an efficient and less costly buying process.
With blanket loans, you don’t have to pay off the whole loan when one property closes. The closed property gets taken off the agreement while the remaining properties stay on the mortgage.
However, the requirements are stricter, and a blanket loan can’t be used to purchase properties in different states. This is because the laws governing it vary by state. Blanket loans also attract a high closing cost and use your property as collateral.
Note: Blanket loans favor real estate investors, developers, and commercial property owners more.
Mortgages provide financial support for real estate investors buying a property. But is there a limit to the number of mortgages one investor can have? The Federal National Mortgage Association set the limit at 4 – 10 mortgages.
While this is beneficial to investors, the more mortgages you apply for, the more strict the process becomes. You’ll have to satisfy more demanding criteria, which usually involve credit scores, tax returns, financial statements, down payments, etcetera. Provided you meet these demands, your mortgage will be approved so you can expand or develop your assets.
Are you looking to buy or sell your property? It might be counterintuitive to do that on your own. In that case, you can rely on Homes by Ardor to help you with its experienced real estate agents.
Homes by Ardor, real estate agents, have a solid dedication to delivering their best service to buy or sell your property at the best possible price. They can also provide you with relevant real estate and financial information to guide your final decision. Contact us today to get started with your real estate needs!
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.