Limit on mortgages

[Susan Maneck]

I have a question regarding the Fannie Mae restrictions on the number of mortgages. Two of my houses are financed by first place HELOCs.  Would those count towards the four they want to allow? 

[Chris Mason]

Hi @Susan Maneck and @Matt N.

Freddie's cap is actually 6 financed properties, not 4. 

Fannie's purchase or rate/term refinance cap is actually 10, with down payment requirements bumped 5% for mortgages 5 to 10.

For 5 or 6 financed properties, Freddie is nice because they don't have that 5% bump to down payment requirement. So there's a little sweet spot there where Freddie is almost always better than Fannie because Fannie will want you to cough up 5% more.

Fannie will do cash out for up to 4, Freddie will go to 6. No more Agency cash out refinances after #6, so get aaaaaaaalllllllllll the cash out refinances out of your system before you acquire #7.

Anywho, they are counting "financed residential 1-4 unit properties," not number of mortgages, number of homes, or anything else.

So if it's got a 30 year fixed 1st, a HELOC 2nd, and a private 3rd mortgage? That counts as one financed property.

If it's got a single HELOC and no other mortgages? That counts as one financed property.

Susan, specific to your question, there's a weird quirk where sometimes a great HELOC is ONLY willing to be in 2nd position. Makes no sense. The solution there is to get a $100k 1st mortgage so the HELOC can be in 2nd position where it's comfy and happy and doesn't have stage fright, pay the first down to like $10k immediately after closing (remember you only pay interest on the outstanding balance!), then pay it off entirely with your 6th payment, and boom our cute & scared little HELOC is now front and center, in 1st position, and doesn't even know it should have stage fright and is still comfy and happy.

Next part of your question, a HELOC that is open but with zero balance DOES count as a financed property but if you can close without using that HELOC than it will NOT count in your DTI.

Something AMAZING that sometimes happens is you sell a property with a HELOC on it, is that once in a while it never occurs to the HELOC lender to close the line of credit. So you've basically accidentally ended up with a credit card that has a quarter million dollar limit, a killer HELOC interest rate, and it's unsecured debt. Always check if the HELOC is still open after you sell, these little "glitches in the matrix" are awesome!

Anything I missed?

The bad news for you is that these are base Fannie/Freddie guidelines, individual lenders can and do have more restrictive "overlays" that can kill your deal, I'm not licensed in Mississippi or Pennsylvania, CA only, so I can't be your "no overlays, no extra BS, direct lender with Fannie/Freddie rates." But they exist in your state, I promise! Go make some phone calls. :)