Homebuyers can apply for mortgages through their preferred lender in a conventional real estate deal. It enables buyers to secure a repayment schedule and interest rate for their new property. Many people don't know that they can apply this process when purchasing an investment property or a second home.
Whether you're looking to expand your vacation home count or real estate investment portfolio, you might ask, "How many mortgages can you have as a real estate investor?" Purchasing multiple properties can be an excellent way to make money and increase your assets, especially if you make intelligent decisions.
However, you might need to consider your experience level and ability to finance multiple properties before taking the plunge. This article explains the concept of having multiple mortgages and alternative financing options.
Why Should You Invest in Real Estate?
While you may be asking — "How many mortgages can you have as a real estate investor?" — it's also essential to understand why individuals go into real estate investments and the massive financial rewards that come with it.
The beautiful thing about real estate investing is that investors can do it on their schedule. Some take real estate investment as a side-gig and build it gradually alongside their career, and others run real estate investment as a business with a full-time commitment.
Here are the significant reasons individuals invest in real estate:
- Unexpected opportunities (like an inherited home with great rental potential)
- Improved ROI (return on investment) that you can use as retirement income or savings, as home values can rise over time
- Unlike bonds and stocks, which aren't easy to evaluate and understand, people desire to invest in a tangible asset
Now, let's see the various ways you can finance real estate investing.
Finance Sources for Real Estate Investing
Regardless of your reason for going into real estate investing, you'll need financing to grow and sustain your business.
Here are the benefits of financing:
- Optimize cash flow when rates are down by refinancing properties
- You can acquire more assets to grow your portfolio
- Make needed renovations or repairs on your properties
- Tap into existing property equity
Luckily, there are various ways investors can finance real estate investing. If you have bought a home, you'll be familiar with the first option: a conventional mortgage. Conventional mortgages offer the following:
- No up-front premium requirements other than a down payment
- Low/no mortgage insurance requirements
- Availability of a fixed interest rate (long-term)
However, if you're looking to finance multiple investment properties, getting a mortgage lender or bank for your investment property mortgage can be challenging.
Also, answering the question — "How many mortgages can you have?" — when taking a conventional loan can be challenging as the current financial market, the individual lender, and their underwriting guidelines all have an impact.
Alternatives to conventional loans include:
- Private money lending
- Seller financing
Residential real estate investors can expand their investment portfolio using any of these financing options without worrying about the conventional mortgage lender limits.
How Many Mortgages Can You Have?
You may still be wondering, "How many mortgages can you have?" or "Can you have multiple mortgages?"
Yes, you can have multiple mortgages. Most conventional lending institutions allow up to four properties if you have a good down payment and credit score. However, Fannie Mae allows for up to ten conventional mortgages per person.
About 12 years ago, Fannie Mae increased the property finance limit to ten, though with significant requirements, making it rare and hard to obtain. (We can delete this sentence, it’s not hard to get 10).
Can Multiple Property ROI Significantly Boost Your Cashflow?
Why should you invest in real estate using mortgages, knowing it won't make you debt-free? Investing with other people's money can significantly boost your potential ROI and cash flow. This can be "good" debt.
A good debt is an amount you borrow to invest in a property to produce income. It is referred to as "good" because you'll eventually earn more than the debt.
Let's see how you can use multiple mortgages to invest in real estate.
Suppose you have $100,000 for investing and the average buying price in your preferred market is $100,000.
You buy a property that returns $800 monthly in rent. After settling expenses, such as homeowner's insurance and taxes, you have $725 monthly as net cash flow.
Assume that you used that same amount ($100,000) to finance five similar rental properties with $20,000 out of pocket expenses and a down payment on each.
Each property will offer that same $725 monthly ROI with a $520 monthly mortgage payment on each property. Instead of clearing about $75 monthly, you'll be clearing $1,025 monthly and growing equity in multiple properties.
You can easily increase your rent every year, thus boosting cash flow while maintaining constant carrying costs.
Keep in mind that real estate properties appreciate. Real estate appreciates by around 3.7% each year, which means that your properties will be worth about $300,000 each in 30 years.
That's a massive difference!
It's a more innovative way to invest in real estate both in the long term and the short term. This example illustrates why it's essential to finance multiple rental properties simultaneously.
How to Apply for Multiple Mortgages
Since you can now answer the question of how many mortgages you can have, we'll explore how you can apply for the first four mortgages.
As soon as you decide to obtain money loans for the first four properties, you'll need to choose between working with a mortgage broker or a lender directly.
In either case, keep in mind that their client base mainly consists of couples and individuals applying for a mortgage loan on their primary residence.
Ensure that they've got experience working with real estate investors to help them understand your objectives as you proceed with the underwriting stage and application.
Here's why that's essential: a mortgage broker with real estate investment experience might be a good fit if they are familiar with mortgage lenders who are ready to provide loans for more than one property.
Make sure to ask the mortgage broker about their experience with real estate portfolios and investors. You can also ask if they currently hold any personal investment properties. If they do, they may be able to advise you based on personal experience.
Although there are no laws stopping banks from providing multiple mortgages to one person, the big banks are less willing to give multiple loans. Here are the requirements from the bank before you can access mortgage loans up to four properties:
- Your current real estate properties should be doing fine and yielding a positive cash flow
- Your LTV (loan-to-value) should be between 70 to 80%
- Have a good or excellent credit score
The process of obtaining multiple loans is similar to that of getting the first loan, and it includes:
- Proof of income (POI) from tax returns or W-2s, statement of liabilities and assets
- Low-fixed, long-term interest rate
- No insurance premium (up-front) required
- Depending on your down payment size, there is no/low mortgage insurance premium required
- Financial statements on your existing rental properties, including rent roll, P&L, and existing loan details
Depending on your financing plans, you might want to visit a smaller, independent or local bank if you're looking for more flexible and open-minded policies.
Working with a smaller bank will give you more room to negotiate and discuss the process.
How to Apply for Five to Ten Mortgages
While you can have up to four mortgages, Fannie Mae provides guidelines for getting a 5-10 properties program for real estate investors. In a bid to protect their asset, several banks design policies that make it difficult to get a mortgage on numerous properties.
Once you get up to four mortgages, the underwriting guidelines become stricter. Here are some of all of the requirements you may need to provide:
- A 720 minimum credit score
- No foreclosures or bankruptcies within the last seven years
- No late mortgage payment on any rental property within the previous 12 months
- 30% down payment on quads, triplexes, and duplexes or 25% on each rental property
- Cash reserves (six months) to cover taxes, interest, insurance, and principal on all properties
- Tax returns (two years) showing rental income from each property
These strict guidelines make it almost impossible to get additional loans via a traditional lender. However, there are other alternatives, such as portfolio loans and blanket loans.
A portfolio loan involves a lender providing a loan to a borrower and keeping the debt on their portfolio. A portfolio loans keep bringing in consistent interest — they don't sell it to other lenders. It's not the same as traditional loans as the bank providing the loan can sometimes sell them to another lender who services the loan.
Portfolio loans get approved faster than conventional loans, though they have higher interest rates.
Where you want to acquire multiple real estate properties while financing with mortgages, you can use a "blanket mortgage" in place of an individual mortgage. It puts all your rental investments under one financial agreement.
Blanket loans make the monthly payment system, overall hassle, and paperwork much easier.
It comes with a high-interest rate and fees. In addition, each property will serve as collateral for others, making defaults a scary proposition.
Other Financing Options for Real Estate Investing
Whether you're looking to expand your financing options or reaching that point where you can't get financing from banks anymore, there are several other ways to finance real estate deals without using multiple mortgages. They include:
- Private money lenders
- Seller financing
Private Money Lenders
Private money lenders are an excellent financing alternative for investors. This involves private financiers providing funding for buy and hold or fix and flip projects.
Having private money loans means you won't need to ask, "how many mortgages can you have?". Another perk is the advantage of the private financier's expertise and professional network if you need advice or assistance on developing the project. In addition, you can still use private money lending regardless of your credit history.
Keep in mind that most private financiers usually require substantial down payments and a high-interest rate on the loan you get. You'll find them less challenging to work with than traditional lenders regarding the approval and underwriting process.
Due to their understanding of the real estate industry, communicating with a private money lender is more straightforward and smoother than communicating with the bank on subjects like:
- Your experience
- Your plan
- The value of the project
Keep in mind that private financiers will work with real estate investors directly while banks generally have layers of bureaucracy which means you can't see the decision-makers.
Your financier will always be glad to lend money to you once they find that you're trustworthy and competent. So you won't have to worry about the number of mortgages you can have as a private money lender won't set arbitrary limits.
You can negotiate seller financing if you meet a motivated seller. It implies that a seller allows you to pay every month instead of asking you to look for a loan to finance the property.
This type of financing involves a substantial down payment paid up-front with a shorter payoff than conventional financing.
For instance, a seller might require you to complete payment within four years — which is shorter than the traditional mortgage's 30-year payment payoff period.
You might need to get another financing option within the four year payoff period or risk losing that property if you don't have that amount.
Seller financing is an excellent option if you're looking to own a property producing quick income, and your seller also wishes to get a fast rental income from the investment property.
This financing method is also an excellent way for sellers who wish to sell a property as-is to avoid settling the bank-required improvement and repair costs to sell via conventional financing.
How Many Mortgages Can You Have: Determine What’s Right For You
The most suitable finance option for your real estate investment depends on several factors, including:
- Your personal resources
- Your experience level
- Your real estate investment strategy
You'll want to consider your preferences and values. If you're not one to mix business and pleasure, you might not want to borrow money from friends and family.
Also, suppose you're just starting out and looking to get your first few rental properties. In this case, you might want to consider the predictable terms and lower interest rates that the banks or traditional mortgage lenders offer.
Ultimately, factors that largely determine what's right for you are as follows:
- What enables you to preserve your optimal cash flow
- How you optimize the time frame
- What works for how you prefer to invest
- What inspires you to get deals done
Keep in mind that there will always be deals to complete, and there'll always be investors looking for a profitable yield on their investment.
If you focus on maximizing income from each investment and purchasing at a reasonable price — becoming an expert and more skilled investor — you'll find individuals eager and willing to invest in you. Visit The Short Term Shop to get more insights on how to get started in the real estate business.