Multiple mortgages

7 Replies

I have a few interested partners with down payment cash. I would be carrying the mortgages, and we would do a 50/50 ownership deal with traditional 20/80 financing.

I am looking to pickup more than 4 properties this way. I'm wondering if it will be harder to get lender approval after having a few mortgages in my name. I do not have any mortgages now.

I have excellent credit and a great income to debt/expense ratio. I'm thinking that with each positive cash flow property, my expenses will go up, but my income will go up even higher. So i should still maintain a great income to debt/expense ratio, right?

Originally posted by Julian Ferreira:
I have a few interested partners with down payment cash. I would be carrying the mortgages, and we would do a 50/50 ownership deal with traditional 20/80 financing.

I am looking to pickup more than 4 properties this way. I'm wondering if it will be harder to get lender approval after having a few mortgages in my name. I do not have any mortgages now.

Yes, it will get a little harder with each additional one unless they are spaced out some in time and since the lender DOES CARE where your down payment comes from, they will want your partners on the note too.

I have excellent credit and a great income to debt/expense ratio. I'm thinking that with each positive cash flow property, my expenses will go up, but my income will go up even higher. So i should still maintain a great income to debt/expense ratio, right?
Yes, but they will discount the credit they will give you for the rent. Some lenders are only counting as little as 60% of the documented rents received while other are still counting 75% of it.

Fannie Mae will only allow you to have a total of 4 properties including your primary residence in your name. If you have a partner on the title then it counts as one property for each of you.
You will find most mortgage lenders will follow this rule as it makes the mortgage easier to sell off.

Can i put the mortgage notes in my name for now, then later transfer them to an LLC? or get a commercial loan to pay them off?
I just don't want to limit myself from the start.
Thanks.

Originally posted by Taz:
...and since the lender DOES CARE where your down payment comes from, they will want your partners on the note too.

My broker has said that they can accept a gift letter from a partner, and just have my name on the note, and both our names on the property title.

Taz- transferring property to an LLC doesn't change the fact that the loan is on you, hence it'll still be 1 of the 4. If you refi commercial, NORMALLY this will not show on your credit report. One other thing. You MAY have more than 4 mortgages, as long as they are secured by only a total of 4 properties.( a first and heloc for example would be one)

Originally posted by Julian F.:
Originally posted by Taz:
...and since the lender DOES CARE where your down payment comes from, they will want your partners on the note too.

My broker has said that they can accept a gift letter from a partner, and just have my name on the note, and both our names on the property title.

Ok talked to my broker again today, I was wrong.
They cannot accept a gift letter from anyone outside your immediate family. You are right, they do want the other person on the note.

We are looking into doing this too.

I would only do this myself, if we had set this whole org up on paper with a proper LLC and docs describing how the acticity will work. Make a business plan for the venture showing financial projections for this plan. You can do this in less than 6 pages. I usually make a flow chart since this is how these things go. The background info on all LLC members should contain financial docs for you - main contact, and all members will be there as a subset of the financial docs. Your plan should show exit strategy, pay out strategy - show each step of your thinking.

After all, it sounds like you will be the front man and take the biggest responsability for the venture. So CYA.

The docs protect your partners as well. If they are not asking for this don't work with them. It would be a sign they are "not ready".

With your business plan, you would be setting up with the bank a pre plan for funds you will need to be sure will be there when you need it. And then when your LLC goes to apply for the loan (one on each prop as you find them)

My bank let me know their under writers wanted to see cash in the account that is just sitting there as a cushion. So your bank may come back to you with requests for docs, feedback etc.

Make sure your attourney looks over your plan and docs before you bring them to the bank. We usually let the CPA know before we do a purchase or a sale or refi too. Sometimes he has advice about timing or records he will need to save us on taxes.

If you can make it work on paper, you will be more certain of success when you do the real deals. You will know the parameters you must work within.

Good luck.

Diane

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