So, you are looking to build a portfolio of rental properties. Purchasing your first one is often similar to purchasing your primary residence. You use your personal income to qualify for a conventional mortgage, and send in all your documentation, including your tax returns and financial statements. Some investors might be able to repeat this process when they finance their first few rental properties, but then what? In this post, we'll break down how many mortgages you can obtain through different kinds of lenders and financial tools you can use to build a large real estate investment portfolio.
Loan Options for Rental Properties
When thinking about how many mortgages can you have, a good start pointing is looking at the different types of financing available, which comes down to conventional mortgages, bank loans, or private money loans.
Conventional Loan Limits
Put simply, Fannie Mae allows for ten mortgaged rental properties in their guidelines. While that sounds like a lot, the requirements are quite stringent. For instance, Fannie Mae uses personal financial history to determine if you qualify for a conventional mortgage. This means that your personal income is going to have to be much higher than the existing mortgages, which more often than not is problematic. You'll also need to have an impeccable credit score, strong cash reserves, and significant documentation (paystubs, W2s, tax returns). So, for the question "how many mortgages can you have," with conventional mortgages the answer depends on how strong your personal income is. For some investors, it is hard to obtain more than one mortgage through personal income.
Bank Loan Limits
Unlike Fannie Mae loans, bank loans are not eligible for sale or guaranteed to be backed by the Federal Housing Administration (FHA). That means all bank loans need to be held on their own balance sheet, which impacts what they are willing to finance. Most local banks focus on commercial real estate, though sometimes residential real estate investors will have luck obtaining a bank loan. This is not a reliable tool by any means. And, though banks have less stringent requirements than traditional lenders, you will still have provide substantial documentation including tax returns, pay stubs, and personal financial statements. You will also need a strong credit report and significant cash reserves. In summary, the answer to how many mortgages you can have through a bank, depends solely on each bank's discretion.
Private Loan Limits
Private money lenders, like Visio Lending, offer DSCR loans, which look at rental income rather than personal. Like a bank loan or a conventional loan, a private loan will look at your credit score and cash reserves. However, unlike traditional lenders, private lenders care most about whether or not the rental property cash flow can cover your mortgage loan payment. For this reason, real estate investors are able to qualify for multiple mortgages through a private lender, and there is no hard limit on how many mortgages you can have.
Other Tools for Acquiring Multiple Properties
In the previous section, we covered the different options for financing a rental property. Here are some other tools experienced real estate investors use to acquire multiple properties.
Rather than obtain a new mortgage loan, some investors will use a cash-out refinance on existing properties. Through this real estate investment strategy, they tap into their equity from existing investment properties to pull out cash and finance more. Keep in mind, you will still need to have down payments and closing costs for this strategy.
Home Equity Loan
If you have a primary residence, you can use a home equity loan to borrow against the equity and purchase an investment property.
Hard Money Loan
A hard money loan is a short-term loan on investment properties. Typically, real estate investors use hard money loans for construction projects, yet they can be used for rentals as well. If you're considering obtaining hard money loans, be prepared to have an exit strategy for loan terms up to two years and a high interest rate. We have a guide that covers the process and nuances of working with hard money lenders more in-depth.
Also known as blanket loans, portfolio loans allow investors to finance multiple properties under the same mortgage agreement, same lender, and same mortgage payment dates. Traditionally, portfolio loans were used for commercial real estate, but now they can also be used for residential rental properties. Portfolio lenders are hard to come by, but one defining characteristic of a blanket loan is the release clause. This allows for the sale of properties within the blanket loan without making the whole mortgage due.
If you are struggling to find a mortgage lender or the right tool for financing multiple mortgages, consider working with a mortgage broker to learn the best options for you.
Factors that Influence How Many Mortgages You Can Obtain
Whether you are looking to obtain conventional mortgage loans, blanket loans or cash out refinancing loans, there are several universal factors that impact your ability to qualify.
Your credit score and credit history play a crucial role in determining how many mortgages you can obtain. Lenders assess your creditworthiness to gauge your ability to repay loans. A higher credit score typically opens the door to more favorable mortgage terms and allows you to qualify for multiple mortgages.
Rental Income and Debt-to-Income Ratio
Traditional lenders consider your income and debt-to-income ratio (DTI). Your income helps determine how much you can afford to borrow, while your DTI indicates how much of your income is already committed to debt payments. Mortgage lenders prefer borrowers with a lower DTI as it suggests they can comfortably handle additional debt.
Private money lenders and portfolio lenders will usually look at your rental income and cash flow, rather than personal income.
A larger down payment can make it easier to qualify for multiple mortgages. A substantial down payment reduces the loan-to-value (LTV) ratio, making you a less risky borrower in the eyes of lenders. Further, the larger your down payments, the lower your interest rates will be.
Strategies for Managing Multiple Mortgages
If you're looking to start real estate investing, before obtaining multiple mortgages, here are some tips to keep in mind.
Build a Strong Financial Foundation
Before considering additional mortgages, ensure that your financial foundation is solid. This includes having an emergency fund(s), manageable debt levels, and a superior credit score. A strong financial foundation reduces the risk associated with multiple mortgages.
Assess Your Real Estate Goals
Clearly define your real estate investment property goals. Are you looking for rental property income, long-term appreciation, or a combination of both? Your goals will dictate the type of properties you invest in and the number of mortgages you'll need,
Work with Experienced Professionals
Real estate investments can be complex, especially when dealing with multiple properties. Consider working with experienced real estate agents, mortgage brokers, and financial advisors who specialize in real estate investment.
Finance Multiple Mortgages with Visio Lending
Bring your real estate deals to Visio for competitive interest rates, 30-year terms, and limits to how many mortgages you can have. Our financing is far simpler than conventional mortgages with no tax returns or DTI calculations.