How Many Conventional Loans Can You Have

Apr 3, 2023 | Mortgage Guides

If you are considering adding another property to your investment portfolio or looking to buy an investment property separate from your primary residence, you’ve come to the right article.

‍From a technical standpoint, there is no limit to the number of mortgages one can possess. Alas, qualifying for multiple conventional loans is more of a challenge. Lenders, such as banks, seldom offer loans to those who already have their finances invested in other properties. According to most financiers, there is a ceiling to how many conventional loans you can obtain in order to invest in an investment property.

‍Check out our overview before leaping to managing multiple properties or attempting to refinance existing mortgages. Find out the current limit on conventional loans, the available financing methods, and the pros and cons of harboring more than one mortgage loan in your investment arsenal.

What Is the Limit for Conventional Home Loans

Following the Great Recession in 2009, the Federal National Mortgage Association (also known as Fannie Mae) increased the maximum number of mortgages in order to expedite economic recovery. What was once a cap of four loans, homeowners and investors are now permitted to have up to 10 conventionally financed properties in their name at one time, according to Fannie Mae

‍Although you may qualify for ten mortgages, lenders do not always approve that many. Lenders might be reluctant to authorize further financing if you already have four or more loans in your name. The more mortgages, the more challenging the application process becomes as the cash reserve, credit score, and down payment criteria increase.

‍While qualifying for numerous mortgages is not always easy, it is feasible. Learn how to do so and determine how many you may qualify for below.

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Qualifying for Your First Four Mortgages

For most folks, the first four conventional loans are the easiest. The home-buying process remains straightforward and similar. To meet the eligibility to finance the first few properties, four, in particular, traditional lenders will ask that investors fulfill the following conditions:

  • A good credit score (670 to 739) or higher
  • A conservative loan-to-value (LTV) ratio of up to 80 percent
  • Financial statements of assets and debts
  • Financial statements on existing investment properties
  • Proof of income (i.e., tax returns or W-2s)
  • Proof and documentation on other mortgages

‍Other requirements, like cash flow from rental properties, may also be imposed. Inquire with the lender about specifics and how to satisfy them. 

‍Investors often discover that working with a local bank or mortgage broker is preferable. Such lenders offer alternate financing programs and are often more willing to go the “extra mile.”‍

How to Qualify for Five+ Mortgages

Conventional lenders impose stricter underwriting qualifications on folks with four or more properties. With each loan application, it becomes more complicated to qualify. 

‍Examples of the eligibility for a financial portfolio for up to 10 mortgages include:‍

  • A good to excellent credit score- at least 720
  • A 25 percent down payment at minimum for each property
  • Proof of cash reserves that cover six months of PITI (principal, interest, taxes, and insurance) coverage for all properties
  • Proof of net rental income from each property, often in the form of personal taxes from the past two years
  • No late mortgage payments within 12 consecutive months
  • No bankruptcies or foreclosures within the past seven years

‍Depending on the lender, further guidelines may exist to finance mortgages five through 10. Ask your loan provider about ways to improve your odds.

Fannie Mae 5-10 Properties Program

In response to the national housing crisis, Fannie Mae launched its 5-10 financed properties program in 2009. Before that, conventional loans were limited to four properties. With this program, Fannie Mae assumes all the risks that traditional lenders provide.

‍The goal was to assist in the nation’s economic recovery by helping qualified investors expand their real estate. The requirements to participate are designed with flexibility, offering potential assistance to eligible buyers who might have yet to be qualified. That helps stimulate the housing market and makes property investments more accessible to a broader range of individuals. See the requirements below:

  • A 720 credit score
  • A 25 percent down payment for a single-family home or 30 percent for a multi-unit property
  • A completed 4506-T tax form
  • Two years’ worth of tax returns with proof of rental income
  • Possess the funds to cover PITI for all properties
  • No bankruptcies, delinquencies, or foreclosures of 30 days or more in mortgage history or within the last seven years

Types of Conventional Loans 

Several conventional loans are available to choose from. Alas, it is crucial to understand the differences between these mortgage products. Every option has conditions, along with distinct advantages and disadvantages. Discover all the conventional loans below:‍

  • Conforming: This loan is the standard for conventional home financing. It adheres to the Federal Housing Finance Agency (FHFA) guidelines and meets the standards of Fannie Mae or Freddie Mac.
  • Non-conforming: Also known as jumbo loans, these are larger conventional mortgages that exceed the FHFA limits, making them riskier for lenders. 
  • Non-qualified: Borrowers unable to meet the conventional qualifications but are still confident in their ability to take on a mortgage have this loan to consider.
  • Low-down payment: There are several options for paying a minimal down payment on a conventional mortgage. What used to require 20 percent down for traditional financing can now be found with five, three, or even zero percent down.
  • Renovation: Homebuyers investing in a fixer-upper can finance their purchase and the upgrades together.
  • Fixed-rate mortgages: Every mortgage requires the borrower to pay interest. With a fixed rate, the interest stays the same throughout the life of the loan.
  • Adjustable-rate mortgages (ARMs): The interest rate of ARMs can vary over the loan term based on fluctuations within the market.

Alternative Financing Options for Multiple Mortgages

While conventional loans can finance up to ten properties, reaching that milestone is still challenging. For real estate investors, it is essential to know that there are various options outside of conventional lending to fund more mortgages.

‍Below are details on alternate choices like blanket loans, portfolio loans, hard money loans, cash-out refinancing, and other financing methods.

Blanket Loans

You can combine multiple mortgages under the same financing deal with a blanket loan. By utilizing such, investors can guarantee that all the rental properties’ interest rates are the same. Blanket financing does have a reputation for rigorous eligibility standards but is a terrific method to consolidate multiple mortgages. Commercial property owners, real estate developers, and investors often use them.

Portfolio Loans

Traditional lenders also offer portfolio loans, also known as cross-collateral loans. You can finance more than one property with this loan, and they are known to provide expedited approval times. Alas, they can be more expensive than a conventional loan in terms of interest rates and prepayment penalties. The lenders assume the risk rather than selling it to a secondary company.

Hard Money Loans

A hard money loan, known for having lower approval requisites but higher interest rates, is arranged by an individual or business. Investors often close on these loans within days or weeks, making them renowned for quick timelines (compared to the typical month-long process). Most lenders will use the property as collateral, meaning that the lender can repossess it if you cannot make payments. In light of that, hard money loans can be a secure option for fast funding. 

‍These loans are versatile and cater to different property types and units, for example, single-family homes or multi-unit properties. Moreover, they have flexible down payment requirements and may even present attractive offers for borrowers.

Cash-Out Refinancing

Another way to expand your portfolio of investment properties is with cash-out refinancing. With this option, borrowers use the equity they have accrued in an existing property to pay for a new one. This money can go toward the down payment on a traditional mortgage or another appropriate lender. Many investors consider this an excellent choice for buying new homes since it provides quick cash access.

Creative Methods to Finance Additional Rental Properties

Mortgage financing becomes more challenging as you diversify and expand your real estate portfolio. That is because, in the eyes of lenders, the risk increases with the more properties an investor owns. Nevertheless, there are a few creative workarounds to keep growing and finance more, such as:

  • Those with retirement savings can pivot into a self-directed IRA with checkbook control to finance property purchases through the account.
  • Business owners without employees besides their spouses can use a one-participant 401(k) as a retirement plan to purchase rental real estate.
  • Homeowners can use a 1031 tax-deferred exchange to provide additional investment capital by relinquishing one property to buy another.

Pros Of Multiple Mortgages

Diversifying in real estate has its advantages, which have led many investors to pursue taking out mortgages on several properties. One of the many benefits is that applying for multiple mortgages doesn’t require as much cash upfront (except for the down payments and closing costs), so the process often has a quicker turnaround.

‍Other advantages of acquiring multiple mortgages include lower interest rates, more home equity, and potential tax benefits. Homeowners with numerous mortgages also have better access to home improvements or debt consolidation funding. With multiple mortgages, investors can streamline these operational expenses.

Cons Of Multiple Mortgages

The biggest drawback is the debt you incur due to a myriad of mortgages. No matter the reason for the loss of income, you are responsible for making all mortgage payments. That might increase your chance of foreclosure and lower your credit score, making investing harder in the future. 

‍Financing with a mortgage is not always the most economical course of action. Working with traditional lenders may result in higher interest rates when adding more than one house to your portfolio. As they start buying more rental properties, many investors will choose to work with private money lenders, business partners, or even through crowdsourcing.

Managing Numerous Home Loans

Purchasing real estate can be a terrific way to develop assets. Beforehand, consider whether your current and future financial standing is suitable. 

‍You should develop a strategy for keeping track of multiple mortgages. You cannot always account for the lender, mainly if it is a nontraditional loan option. Three aspects of each loan to keep a tally are the principal balance, payment dates, and the payoff timeline. Also, you could have multiple lenders for your mortgages, which may entail even more organization.

‍If you have further questions or concerns about how many conventional loans you may qualify for, contact Wesley Mortgage and speak with a representative today.

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