Have you ever wondered how many mortgages you can have at once? In 2009, Fannie Mae updated its same borrower policy, changing the maximum number of conventional mortgages a person can have from four to 10. However, qualifying and finding a lender that will give you more than four can be difficult .
In this article, we will discuss what is needed to have multiple mortgages (including an example), the pros and cons of having multiple mortgages and how to manage them.
Real estate investment with multiple mortgages
While you can take out up to ten mortgages, the qualifications become stricter after your fourth. Here’s a side-by-side comparison:
|Mortgages 1 – 4
|Mortgages 5 – 10
|A minimum credit score of 670 (620+ for your first mortgage).
|A minimum credit score of 720+.
|Loan-to-value ratio (LTV)
|80% or less.
|Usually 80% or less.
|25% for investment properties, 30% for multi-family homes.
|Tax returns required
|W-2 or proof of tax returns showing all rental income from all properties for one year.
|Proof of tax returns showing all rental income from all properties for two years.
|Late payment restrictions
|Late mortgage payments are discouraged.
|No late mortgage payments are allowed on a property in the past year.
|Additional documents required
|Statement of assets and liabilities and financial statements of any existing investment property.
|Statement of assets and liabilities and financial statements of all existing investment properties.
|Additional financial requirements
|N / A.
|Proof of six months cash reserves for principal, interest, tax and insurance (PITI) coverage for each property.
When shopping, ask mortgage lenders about their additional loan needs, if any.
Benefits of having multiple mortgages
Have multiple mortgages has several advantages, including:
- More rental income: The more property you rent, the higher your rental income will be. A triplex could get you $3,000/month, and five could get you $15,000/month.
- Easier to reach FIRE: More properties and bigger returns also mean you can achieve financial independence and retire early (FIRE).
- Larger and more diversified portfolio: Owning multiple properties allows you to expand into different neighborhoods and markets. You may find that certain aspects of your portfolio generate better returns than others and research comparable properties.
- More tax benefits: Real estate investors can benefit from additional tax incentives when owning rental property, including depreciation and cost segregation. These can help you reduce your tax burden.
- Possibility to combine: If you have multiple mortgages with the same lender or insurance company, you can sometimes combine all your payments into one payment, which makes it easier to keep track.
Complications of having multiple mortgages
Managing multiple mortgages can also have its downsides:
- Greater loss potential: The more properties you own, the more expenses you have. You can cash in on rental income, but only as long as you have tenants willing to pay your desired rent, and vacations, upgrades, and renovations are eating away at all of your profits.
- More difficult to manage: Managing ten properties usually takes longer than two. You need to spend extra time or hire a rental property manager to do this for you.
- Requires expertise: Renting a bedroom or the lower half of your duplex does not require you to be an expert investor. The more properties you take, the more you need to know to make sure they are all in good standing and well maintained.
- Stricter guidelines: Many lenders won’t offer you another conventional loan if you already have four, and those who do will have stricter requirements.
- More paperwork: More mortgages usually means more of everything else – more bills, insurance requirements, liability, maintenance, legal paperwork to fill out, etc.
How to manage multiple properties
Already have processes in place that work for you before expanding your portfolio. At the very least, you need a rent registry to track your tenants’ charges, balances, and monthly rent payments. Your register should also include information such as the principal balance of each of your properties, payment terms, mortgage payment due dates, and notes outlining potential maintenance upgrade requirements.
It would be helpful if you also created templates for anything you can think of to streamline your processes. The more you can automate, the more time you’ll spend on other tasks.
Also, don’t rely on your lenders to tell you when mortgage payments, insurance and property taxes are due. It’s your responsibility to pay on time, not theirs. That said, avoiding overlapping payments can be beneficial if you have multiple lenders for each of your properties. This will help you identify when and where your money is going.
Alternatives to multiple financial mortgages
Affordability is often the most common barrier to getting multiple mortgages. Qualifying for a loan is hard enough sometimes!
If you can’t get a traditional loan for your next investment property, here are some other options worth considering:
hard money loans
hard money loans are short-term secured loans from private lenders or individuals. Instead of needing great credit and a low LTV ratio, hard money lenders accept tangible assets as collateral, often property. If you default on this loan, you risk losing this collateral.
Repayment periods for hard money loans are usually three months to one year, but they are longer. You can also expect to pay a higher interest rate for them, usually 10-12%.
Refinancing by collection
A cash out refinances you to convert the equity in your home into cash, which you can use for your next investment. It is a cornerstone of the BRRRR method and a great way to earn extra cash without taking out a loan or paying interest.
Here’s how it works:
Say you have a mortgage for a $500,000 property paid off down to $200,000. This means you have $200,000 left on your loan and $300,000 in equity. If you want to convert some of that $300,000 into cash, you can take out a new mortgage, say for $250,000. Your new mortgage is $250,000, while the remaining $250,000 is cash in your pocket.
This loan is a type of mortgage that a portfolio lender can offer. Rather than selling your investment portfolio to another company, your lender keeps the portfolio loan internally. This allows them to set more flexible mortgage terms, often to your advantage.
However, portfolio lenders also expose themselves to risk. Portfolio loans don’t have to meet conventional requirements, but if they don’t, these lenders can’t sell them on the secondary mortgage.
Global mortgages allow you to finance several investment properties within the framework of the same mortgage contract. These mortgages make life much easier for real estate investors as they have a lot less paperwork to keep up with.
Also suppose you decide to refinance or sell one of your properties as part of your overall loan. In this case, a clause “releases” the property from your original mortgage without disturbing the other properties under the “cover”. This means you don’t have to repay the entire loan.
Is having multiple mortgages right for you?
Owning more properties also means more work and increased expenses. If you don’t have this ability, owning multiple properties can be more stressful than it’s worth if you don’t have this ability.
However, taking out multiple mortgages can result in significantly higher returns if you have investment experience and a solid business strategy. Are you ready to grow your real estate portfolio? Discover more of our expert advice and strategies regarding investment in real estate.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.