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Did you know you can have more than one mortgage? If you’re interested in real estate investing or purchasing a vacation home outside of your primary residence, this is important information to know.
Buying multiple properties, while a great way to increase your assets, can also be an involved process. Before you decide to invest in real estate or purchase another property, it’s essential to assess your financial situation. It takes some experience to navigate multiple mortgages, and this post covers some of the details you should consider.
Read on to learn how many mortgages you can have, how to finance multiple mortgages, and how to qualify for multiple mortgages.
The Federal National Mortgage Association (FNMA), known as “Fannie Mae,” allows you to have up to 10 conventionally financed properties.
It’s possible to qualify for multiple mortgages at the same time, but the process can be complex. Lenders may see you as a greater risk the more mortgages you have and it may be difficult to get more than one mortgage at once. There’s also a chance that you’ll face higher requirements on everything: higher interest rates, higher down payment, higher cash in reserve, and higher credit score.
Qualifying for multiple mortgages can be challenging, but it’s possible. Continue reading for a comprehensive breakdown of everything you need to know about holding multiple mortgages.
If you have good credit, other investment properties that are doing well, and can make a sizable down payment, this increases your chances of getting approved for multiple mortgages. For traditional mortgages, lenders will have requirements around the following areas, and the type of property you’re purchasing will affect what is required:
When financing your first four properties, you can choose to work directly with a lender or go through a mortgage broker. Mortgage brokers are intermediaries between borrowers and lenders. They can help you find the best mortgage rates for your goals and finances. Also, a mortgage broker who is experienced in real estate investment will likely already be familiar with lenders who are willing to provide multiple mortgages.
If you want to qualify for more than four mortgages, lenders will have stricter requirements and the approval process is more difficult. Lenders may require the following:
Prior to the 2008 housing crisis, real estate investors were limited to four financed properties, including their primary residence. Fannie Mae rolled back that rule, and now investors can finance up to 10 properties simultaneously.
It may be difficult to find a lender, as having this many mortgages is seen as more risky for the lender. Requirements are the same as for qualifying for more than four mortgages, with the additional requirements that there cannot be any bankruptcies, foreclosures, or delinquencies of over 30 days in the mortgage history and you must submit a 4506-T tax form.
As a real estate investor, conventional loans aren’t your only option for financing more than four properties. Here’s a look at a few of your options.
Blanket mortgages allow you to finance multiple properties under the same mortgage agreement. Commonly used by real estate investors, commercial property owners, and real estate developers, blanket mortgages are an efficient way to qualify for multiple mortgages. These loans are not intended for primary residences or vacation homes.
It is important to note that closing costs on a blanket mortgage are much higher than a conventional mortgage. Additionally, you may not be able to purchase multiple properties located in different states under the same blanket mortgage.
A portfolio mortgage is a mortgage that remains in the lender’s portfolio, rather than selling it to a secondary company. This is beneficial for the borrower because oftentimes these mortgages have more flexible terms and faster approval times. But, with these benefits come some trade offs. Because the lender is assuming the entire risk of the portfolio loan, the loan has higher interest rates and there are penalties for paying it off early. With a portfolio mortgage, you can finance multiple properties under the same loan.
If you’re looking for fast financing, hard money loans are a viable option. Hard money loans come from private individuals or companies instead of a financial institution. These loans have a faster and less strict approval process. Investors typically close on this type of loan in a matter of days, rather than the standard month-long timeline of a conventional mortgage.
For these loans, the most important thing to the lenders is the property’s value, not necessarily the borrower’s credit. With a hard money loan, the property being purchased is offered as collateral. Meaning, if you default on the loan, the lender gets the property. These loans also come with a high interest rate and can sometimes require a significant down payment. The terms are set by the individual lenders, so the requirements can vary.
As you pay off your mortgage, you increase the amount of equity you have in your property. Cash-out refinancing allows you to tap into this equity and take the cash as a lump sum to put toward a larger mortgage on a new property. Essentially, you’re paying off an old mortgage, replacing it with a new one, and getting the difference in cash. You’re borrowing more than you owe on the property, so that’s where that cash difference comes from. Cash-out refinancing is different from taking out a second mortgage because it doesn’t add another monthly payment to your list of bills; it’s replacing your old mortgage. Then, you can use this cash to purchase an investment property, or whatever else you want.
Managing multiple mortgages can be challenging, but rewarding if done correctly. Here are some proven ways to help you manage multiple mortgages effectively:
Yes, you can have up to 10 mortgages simultaneously. However, the more mortgages you have, the more difficult it is to qualify. You must have excellent credit and a good track record with your other properties, for starters, in order to be considered for additional mortgages. If you’re a first-time home buyer, it will be more difficult to qualify for two mortgages at the same time. Lenders want to know that you have a good track record and history with real estate before approving additional mortgages.
In short, no, you can’t have two primary residences. There are certain special cases where the IRS makes an exception, like if you are a non-occupying co-borrower on an FHA loan or if your family has grown too large for your current residence. But in the context of investment real estate properties, no, you cannot have two primary residences.
Your primary residence is the property where you live for most of the year. It’s the address listed on your driver’s license, tax returns, with the USPS, and on your voter registration card. Your primary residence qualifies for a lower mortgage rate and income tax benefits, which is why you are only permitted one primary residence.
The answer here: it depends. It’s best to check with a real estate attorney. It might be illegal in your state to put in multiple offers on different homes simultaneously, especially if you only intend to buy one of the homes. If you make two offers and both are accepted and you only intend to buy one of the properties, you could lose your deposit and potentially face other legal ramifications. Many real estate agents consider putting in multiple offers to be unethical. Again, it’s best to consult with a real estate attorney to determine the right course of action.
Yes. You can use a home equity loan to buy an investment property or a second home. Your home equity is the amount of your home you actually own. As you pay off the principal on your loan, you build equity. Interest payments do not count toward your home equity. A home equity loan is a type of second mortgage that allows you to take a percentage of your equity as a cash lump sum. You then have to pay back the secondary lender in monthly installments with interest. In contrast to a cash-out refinance, you will have two mortgages on the same property.
A home equity line of credit (HELOC) is another option for a second mortgage. Rather than receiving a cash lump sum, your lender approves a line of credit based on the amount of equity you have in your home. HELOCs come with a “draw period,” meaning a predetermined amount of time in which they are valid. During this time, you must make minimum monthly payments as you would on a credit card. When the draw period is over, you must pay the entire balance left on the loan. Some lenders will require a lump-sum payment and others may allow repayments in monthly installments. If you’re unable to repay the amount you borrowed, your lender can take your home.
If you have high equity and a good credit score, there might be more affordable options for you, like a cash-out refinance. It’s important to consider all of the factors and look at all of your options to determine what’s right for your situation before making a decision.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
