Conventional Financing Question

12 Replies

I am wondering how many mortgages a person is allowed. When it boils down in real estate, I know leverage is key especially with rental properties. But I have heard that banks will only lend a certain number of mortgages before cutting you off. My question is how does one attain wealth and acquire many properties if this is so? Are many investors forced into creative financing strategies?

I have heard people can normally have 4 loans without too much problem as long as you have the income to support them.

@James Wheelock

 most banks will tell you four, if you build a relationship with the right bank they'll let you go up to 10, if you're acquiring a larger portfolio than that you can use what they call a "blanket" loan to consolidate several properties into one loan, or trade up to multifamily so you can have more units under fewer loans.  Do some searching on BP and browse the financing forums and you'll find a lot of discussion about this issue.

If you're in New York learn about private financing or creative financing such as sub to, Land contracts, wrap around mortgages, etc  that don't involve banks or credit on acquisition

Then resell or rent

@Micki M. I'd never thought of or heard of a "blanket" loan. I'm going to be getting into some rental properties but I have no income (my husband is the only working member of my household) so I was worried about how many loans we could get.  My plan was to only do deals with owner financing but I'd love to have the opportunity to do conventional financing. Thanks for that information!!

@Jerry Padilla

can answer in more detail but basically you can do 4 at great terms and 6 more at slightly less good terms in many cases but I believe this will also be subject to things like your FICO, your DTI, etc.

Also, blankets are a product that are not sold to companies like Fannie and Freddie so the terms are normally not as good (i.e. I don't think most banks will give you fixed 30 years at a slight premium to home buyer rates) so make sure you talk to someone before you bank on these and know the risk of rates rising if you end up with a 5 year or 10 year term or adjustment. 

No limit. Most banks say 4, but that is a bank rule. The FHA rule is 10, but very few banks do that. The first question I ask a lender when they are trying to get my business is, "what information do you need to qualify me for my 5th loan?". You will know right away if you should work with them or not.

Once you get 10 loans, you take those properties and bundle them up into a commercial mortgage and start all over.  It really helps if you can season these loans.  If you try do to too many to fast, you are sunk.  Tax returns are you friends for long term debt.

@James Wheelock

Freddie Mac will allow 4 mortgaged properties and Fannie Mae will allow 10 mortgaged properties.

Freddie requires 2 years of landlord experience and Fannies requires none.

I hope this helps and have a great day Sir.

@Charles Worth and @James Wheelock  you can get up to ten mortgages backed by Fannie Mae as long as the lender is able to strictly follow just these guidelines. After that you would have to find a portfolio lender that takes on more than 10 mortgages or you would have to go the route of commercial financing. There is the option of hard money or private lending as well. 

Some of these threads about how many loans can I get are rather funny. No one can tell you! Yes, there are loan concentrations a bank has but it's not necessarily the number of notes you signed, it's the amount of loan concentrations to one borrower. Secondary market has a number of notes, as mentioned, that's because the Secondary really isn't for commercial activities and concentrations are not to a dollar limit but more to the commercial nature at a point.

How many notes you might have is more to your capital, assets, management, equity and liabilities (CAMEL) this is a rating system used by regulators to gauge a banks performance, it applies at a smaller level to each borrower in a commercial aspect.

Old saying, if you can show you don't need a loan, you can probably get one!

I suggest small investors and the newbies concentrate on getting their first loan instead of trying to map out the future. Cross the bridge when you get to it. Chances `are,  your lending picture will be different. As to Secondary types, you can count on up to 10 right now, that changes, you might get your 5th loan and they may cut you off, remember the CAMEL aspects too.

You also need to have more than one lender, a lender can change their portfolio, lending guidelines can change or regulators can cause them to change. There is more to selecting the right lender than them just saying "yes"! I used 4 regional/national lenders, it keeps you from hitting loan concentrations with just one lender.

Just worry about getting your first loan, then the second and so on.

BTW, using private money or creative transactions still effects your CAMEL ride, you can't hide the financials or if you do it's fraud. :)    

I got off the phone with a bank and they told me that 4 is the limit for Fannie Mae/Freddie Mac. 

After that, the banks require you to have more reserves to take on loans 5 to 10 since they are not backed by Fannie/Freddie. I'm not sure what those reserves requirements are but he mentioned that retirement accounts are counted towards the reserve requirements.

After 10, you need to go private lending and other financing options...

I agree with @Bill G. Concentrate on the first loan and buying the property right. Worry about loan limits later. Definitely have multiple lender options. I made this mistake very early. I had a deal fall through because of working with one lender. I was not prepared to act fast with a back-up and didn't know better to have one. I now use several different lenders and I am always looking for more options for different needs/situations that might come up.

Don't put all your eggs in one basket with any bank or lender. A local investor lost his rentals when a bank decided they could not (or would not) renew his loan. The foreclosures put him out of business, trying to refinance a loan that is being called and going to foreclosure is pretty tough, it's poor financial management to get in that position. The story hit the local papers and they were hammering away at the problems the tenant's had. The landlord has a responsibility to the tenant to keep any mortgage current, so the owner was getting hit from both sides.

To a consumer it may look as if the banks in town are in competition with each other...and they are, to a point. Most don't know that banks may have "affiliate" relationships with other banks.  They may share administrative functions, share in loans and servicing, block loans together creating a larger portfolio for pricing or management reasons like risk management. So, don't be concerned about "your" bank seeing you have a loan with another bank, it shows better financial management and they could care fact, they may want your business even more! :)

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