BRRRR- Limit of 4 Mortgages?

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Hello everyone, I have a few questions regarding the BRRRR strategy since I am in the beginning stages of executing my first purchase using said method. Once the property is rehabbed and rented, is there an amount of time I need to wait before financing the property? Also, I recently read that there is a limit of 4 mortgages. If I’m not mistaken this only applies to FreddieMac/FannieMae correct? This does not apply to small lender and credit unions does it? I plan to finance through a small lender where I am good friends with one of the brokers. Thank you all in advance!!

@Freddy Hernandez  Great questions. 

1) Do you have to wait for a refi - Most banks will have a seasoning period of between 6 months to 12 months where you cannot refinance or only can refinance at the purchase price of the property.

2) There are two limits on mortgages - Some banks will cut you off at 4, which is typically a Freddie/Fannie restriction. However, if you go with a bank that portfolios loans (does not sell them) like a community bank, you may be able to get more loans. However, keep in mind you will have to keep a 40% Debt-to-Income ratio and banks typically discount rent as income to (80% of the gross amount). Your hardest challenge will be keeping the Debt-to-Income ratio for refinancing. There are some asset-based lenders that do not keep this rule, but they have lower LTV ratios and require a greater percent down.

Hope this helps.

To add one more caveat onto the great advice from David is banks typically like to see 2 years of rental income from a property before they will allow you to count it as income. It compounds your problem because even tho you can have excellent cash flow they won’t account for it in your debt to income analysis.

@Freddy Hernandez there is a lot of information out there and some of it conflicts with each other.  It is true that you can get up to 10 mortgages with Fannie/Freddie but what you may not know is that the bank has the option of not following that rule.  Meaning, the bank can be MORE strict that than. In the banking industry we call that an "overlay".  Overlays are the extra rules that lenders put on top of the Fannie/Freddie guidelines.  Other examples of overlays - needing 2 years of rental history, having a minimum credit score, waiting 6-12 months for you to be on title.....ALL of those are overlays.  And there's a BUNCH more too.  When you interview at your friends bank ask these questions:

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  3. What is my minimum down payment required? (not so important but if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  4. Can I change title to my LLC?
  5. Do you sell your mortgages?
  6. Can you explain to me what your reserve requirements are?

These questions need to be answered relatively quickly.  That's how you know you are working with a bank that is good at investment property financing.  If your friend does have overlays that aren't friendly towards you (or if he doesn't even know what those are) then please find another lender.  No hard feelings on this, it's just you need a lender that will put you in a position to succeed.  This is critical to your continued success if you are new to investing. 

Again, this post is about Fannie/Freddie lending.  There are lots of other loan types out there.

Good luck!