Limit of number of mortgages?

9 Replies

I get the concept of finding rental property, getting a mortgage, and renting it out obtaining positive cash flow while soaking up the equity. However, is there a limit to the number of mortgages one can receive? Will lenders start to decline my request for a mortgage due to me already having too many on my credit? If the answer is yes, then how do I overcome this hurdle to create a snowball effect (keep obtaining financing over and over for renting out more properties)?

The short answer is yes. Usually around 10 loans. The way around it is once you have several loans you do a portfolio loan on them. 

Peter MacKercher, Real Estate Agent in MO (#2010004223)
(314) 210-4414
Originally posted by @Peter MacKercher :

The short answer is yes. Usually around 10 loans. The way around it is once you have several loans you do a portfolio loan on them. 

 What exactly is a portfolio loan?

right now it is 10 loans per "name". So if you are married and you and your wife have credit worthiness. The best way to extend the number of mortgages you can buy is to only put one persons name on it at a time!

That being said we are doing exactly what you describe! We are working on mortgage 5, 6 and 7. Rules are changing all the time! There are some programs that allow indefinite number of mortgages. I personally plan on getting to the point where I am denied and than go from their ;)

I am guessing the OP's question revolves more around actually qualifying, from a DTI perspective, for more loans. Income from the rentals can be counted, usually 75%, after 2 years of them being on your tax return. To be clear, a Portfolio loan is a loan made by an institution which they keep in house, and don't sell off to the conventional secondary market. It is Not typically a blanket loan on multiple properties. Also to be clear, the 10 "mortgages" limit for obtaining a conventional loan is 10 Properties mortgaged, not 10 mortgages, so a blanket loan for multiple properties doesn't help in that respect.

Conventional loan:  A loan that conforms to the Fannie Mae and Freddie Mac rules.  Often sold on the secondary market after being made.  30 year fixed rates loans are almost always "conventional loans".  Properties 1-4 are pretty easy to get. Many banks and other lenders do them.  Properties 5-10 are tougher, but possible.  You can't get a conventional loan once you have 10 mortgaged properties.

Portfolio loan:  A loan issued by a bank or other lender that the lender keeps.  30 year fixed rate mortgages are rare.  15 year fixed is possible.  These loans sometimes have ARMs, balloons, or both.  Only a few lenders do these, but they do exist.  No limit on number of properties.

DTI calculation: The normal calculation is DTI = (total debt payments) / (total gross income). With rentals, its gets more complex. For one, many lenders ignore rental income until you have two years landlording experience. Once past that, they will look at your tax return to determine your net rental income, which includes the money you pay out for mortgage interest. Savvy lenders will add back depreciation because that's not a cash expense. For a new property, they typically use the formula (net rental income = (75% * rent) - PITI). Once you have the grand total for all your rentals, you will either have a positive number (net rental income) or a negative number (net rental loss). If you have income, DTI = (other debt, not including rentals) / (other income + net rental income). If you have a net rental loss, DTI = (other debt + net rental loss) / (other income). So good rentals help your DTI, bad ones hurt.

Conventional lenders will limit you to 10 loans unless they have an internal overlay with stricter limits. Once you have several properties you can pursue portfolio investor loans from local institutions based on your experience and the income from the properties. We work with portfolio lenders that will provide non recourse loans (no personal credit required) if you have 4 or more properties with net value over 500K providing sufficient income. These loans are made to business entities owning the properties and do not effect your personal credit for further purchases. If you segment out properties into corporate entities and finance on income you can use personal credit to acquire more and continue the cycle.

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