Multiple mortgages enable you to broaden your real estate investments, but limitations apply. You can have up to 10 conventionally financed properties at a time, including second homes and investment properties.
While having several mortgages is possible, you’ll face more requirements as you finance multiple properties at once. Read to understand how many mortgages you can have and what you need to know about getting approved for more than one mortgage.
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The Maximum Number of Mortgages You Can Have
There’s no limit to the number of conventional mortgages you can have for a primary residence. However, you can only have one primary residence at a time. And you’re limited to two mortgages if you’re using first-time homebuyer conventional loans such as Fannie Mae Home Ready or Freddie Mac Home Possible.
For example, you could have a first mortgage and take out a home equity loan as a second mortgage on your primary residence. Or you could take out a mortgage for your primary residence, sell it or pay off your mortgage, and get another mortgage for a new primary residence.
For second homes or investment properties, you’re limited to 10 conventionally financed properties at one time. That’s the maximum number of second home or investment properties you can simultaneously finance with Fannie Mae or Freddie Mac.
However, you can have multiple mortgages on second homes or investment properties, as the limit only applies to the number of financed properties, not the number of mortgages on those properties. And you have the option to seek out nonconventional mortgages.
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You also have the option to pay off mortgages before you apply for new ones, use a personal loan to pay off a mortgage or purchase real estate interests that don’t count toward your conventional mortgage limit, including commercial real estate, timeshares, vacant lots and multifamily properties of more than four units.
Second mortgages on a financed investment property also don’t count toward your limit — just the number of properties. You could take out a home equity loan to finance a new property purchase without counting toward your 10-property limit. However, understand that the home equity loan will appear on your credit report and be considered in asset and liability calculations when you apply for a new mortgage.
There’s no lifetime limit to the number of mortgages you can have — only a limit on how many you can have at once.
“If you can afford to take on multiple mortgages, then there’s no reason you’d be denied as long as you have good enough credit,” says John Ulzheimer, a credit expert formerly with FICO and the credit bureau Equifax.
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Getting Approved for Multiple Mortgages
When you finance multiple properties, expect to face more stringent approval requirements than getting approved for a mortgage on a primary residence. Lenders will consider your personal and rental income, credit score, cash reserves and the property’s value.
Fannie Mae requires months of liquid financial reserves — cash or investments — that can cover the qualifying payment amount. Reserves can be assets from bank accounts, investments, retirement accounts or the cash value of a vested life insurance policy.
For a second home, you’ll need at least two months of reserves or six months for an investment property. When you have multiple financed properties, the calculation increases. For up to four financed properties, you’ll need reserves of 2% of all loan balances, 4% for five to six properties, and 6% for seven to 10 properties.
Additionally, if you will have seven to 10 financed properties, Fannie Mae requires a minimum FICO credit score of 720. That’s higher than the 620 minimum credit score on most conventional loans.
Lenders may have more stringent approval requirements than Fannie Mae and Freddie Mac, such as higher down payment and credit score requirements. Interest rates may be higher when you have multiple mortgages, too. Ultimately, a lender will ensure you have enough cash or income to make mortgage payments in addition to taxes and insurance on the property.
If you’re seeking multiple mortgages, expect mortgage lenders to ask for good to excellent credit, multiple years of tax returns and a spotless mortgage credit history, including no late payments, bankruptcies or foreclosures on your existing properties.
Expect lenders to look at your income, particularly tax returns, to see if you’re profiting from or losing money on rental properties. Lenders will also consider your assets, credit rating and property documents, including the appraised value and current leases.
Dave Krichmar, a mortgage banker in Houston, says you can use rental income to qualify for investment property mortgages. “If you own rental properties, the mortgage company will calculate your rental income or loss off of your tax returns,” he says. “If it’s newly leased, you’ll use the lease on the property.”
Still, you should be confident about getting approved as long as you can afford the payments. “Being approved for multiple mortgages isn’t really different from being approved for one mortgage,” says Ulzheimer. “Your credit quality, your income and the value of the property are all considerations.”
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Alternatives to Conventional Financing
These mortgage limitations only apply to conventional mortgage loans. While conventional loans generally offer the best terms, you may want to consider alternatives if your mortgage plans exceed conventional financing limits or you can’t get approved for a conventional mortgage.
Conventional mortgage alternatives include:
— Commercial mortgages: Commercial properties don’t count toward your limit of financed properties. For example, you could purchase a commercial farm using a commercial mortgage.
— Home equity loans: You can use a cash-out refinance or home equity loan to tap the equity of other properties you own to purchase another home.
— Owner financing: Some sellers allow you to purchase a home from the owner instead of a lender.
— Hard money loans: Generally offered by private investors, hard money loans usually have shorter terms and higher interest rates than conventional loans.
— No-document mortgages: Lenders may offer mortgages with limited documentation, relying on bank statements or assets.
— Debt service coverage ratio loans: Available for income-producing investment properties, debt service coverage ratio mortgages base loan qualifications on a property’s cash flow rather than your personal income.
If the limitations of conventional and nonconventional financing are too much for you, there’s always cash. There’s no limit to the number of properties you can pay cash for.
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How Many Mortgages Can You Have? originally appeared on usnews.com
