How to reach the maximum of 10

Question

Hey guys! My question relates to how the process of acquiring 10 mortgages in your name looks? I know there are residency requirements for many conventional mortgages but are those strictly FHA loans or something like them? If I want to purchase an investment property and it's only my 2nd mortgage can I go to basically any mortgage broker or lender with 20% down, acquire that investment property and repeat until I hit 10? Or does it have to be a portfolio lender? If so, what are some of the differences from a portfolio lender that may stray from the terms and cost of a conventional home loan? Any help or information will be greatly appreciated. Thank you in advance.

Andrew Postell · Answer

@Ashby Tyler Cappelmann you might get some different pieces of information and sometimes some conflicting information with what you asked.  This is going to sound strange but with each mortgage you have, the more likely to foreclose on a property you become.  There is data after data that show this is the case.  For this reason many lenders will stop lending at a certain point or some may have extra rules that they put on top of the Fannie/Freddie guidelines.  These are called "Overlays".  You might notice someone's points above that highlite lending rules for Fannie/Freddie loans.  And while some of those pointers listed are true...many are not.  These come from a specific bank.  So when you speak with lenders about their ability to lend money to you on your investment properties you may have to speak with a few different lenders to find one flexible enough to give you the easiest path to succeed.

Here's some basic answers to your questions:

• FHA vs. Conventional - If you are buying investment properties you will not be using FHA loans.  FHA/VA/USDA loans are for if you occupy the property.  Conventional loans are for non-occupied properties.
• Can I use 20% down? - Yes, you can use 20% down and even 15% down if you want to buy an investment property.  Again, banks might have different rules on this so look for one that can use either option.  20% down does give you a more favorable rate and it also avoids PMI (ask more if you need to know what this is)
• Can I repeat until I get to 10? - Yes, as long as you have the down payment requirement and "reserve money" you can keep going.  You will probably be buying properties that cash flow...meaning, you're not buying properties that you will lose money on.  So as long as each property cash flows you should be able to afford each investment property since the rent will cover the mortgage.  
• Portfolio - Portfolio loans (sometimes called commercial loans) are loans that fall outside of the Fannie/Freddie guidelines.  You can go OVER 10 with many portfolio loans and they can also ignore many other things about lending too.  Portfolio loans will differ from bank to bank.  Portfolio loans are governed by each bank's board of directors.  It comes from their own porfolio of money.  So these rules can differ greatly.  Sometimes the rate is higher, sometimes the rate is adjustable, sometimes the term is shorter...and sometimes its all three.  From 1-10 a conventional loan will give you the best terms and lowest rate you can find.

I know this was a lot of information but if you have more questions then ask away.  If you think this post is helpful then please vote for it so more people can see it.  Thanks!

Joshua Fulenwider · Answer

All conventional mortgages should have identical underwriting standards.  In theory it shouldn't matter who you go to.  In my experience you are going to have better luck getting to 10 with a portfolio mortgage lender.

You can also pursue portfolio/commercial lenders which have different terms but easier underwriting standards.

If you find a lender that likes what you are doing and you can live with the terms it may be easiest to stick with them.

Albert Bui · Answer

HI Ashby,

Its probably better to take it from a actual lender who invests than an investor who doesn't lend regularly.

With that said, Fannie Mae is currently at 10 financed properties max and Freddie Mac is currently at 6 max.

The above refers to 1-4 unit residential properties that you either have been personally obligated on (you're on the mortgage note personally) or that you've taken title to personally (in your own name).

There are different limits that you might hear like 4 for conventional, but those are most limits the larger institutions place on borrowers because they either dont like dealing with borrowers who have more properties or perhaps the risk with those borrowers is greater in their perception. It does not mean Fannie or Freddie will not buy these notes so you just have to find an institution that will go to the farthest limit that FNMA/FHLMC will go to. The company I am at we pretty much go to 99% of the limits allowed. The upside of this is greater flexibility for the borrower and for those that want that level of far reaching capability while the downside of taking on this greater risk is that our rates will not be like an internet lender operating out of a cubicle.

Fannie & Freddie have gone back and forth as to what constitutes a "financed property," but one interesting fact that I've field tested is that if a property is owned in a LLC and the debt or note is secured by your LLC then it does not count in the 10 or 6 count above. Now, this is not to say every bank will look at it this way (the company I work at does) but, its definitely something to consider when you're doing mortgage planning for your REI acquisitions going forward.

A way to get more than 10 is to mix and match portfolio or local community/commercial bank financing (US bank commercial lending is a national player in this field) with conventional financing strategies. An example of this is a borrower who hits 10 but wants to free up some room to get more financed properties so he/she elects to get a blanket loan on the package of 10 properties (one note securing all 10 trust deeds or mortgages) in the LLC name. This basically brings the borrower back to 0 financed properties for conventional lending purposes as of current guidelines (May 2017).

The most effective way (90-95% probability) to make sure an underwriter doesn't count them in your financed property count is to have your LLC that holds your properties file a 1065 partnership return since these properties do not flow down to your personal tax return (form 1040), and therefore only issues a K1 form down to your personal return. Underwriters in the conventional lending world associate K1's with sophisticated businesses and it makes them look at your properties as separate. The flip side of this is you just hold them in your LLC (w/o filing partnership return) and let them all flow down to your personal tax return (usually your schedule E).  At that point whether an underwriter counts them as financed properties is like 70-80% chance of success that they don't based on the current guidelines because its subject to interpretation.

There are a couple other tricks of the trade to increase the chance of getting your file to be viewed the way you want it to be but this would end up being a novel of sorts.

Hope that helps.

Kerry Baird · Answer

This information changes regularly.  I'm going to copy and past the current guidelines.  We have made it up to 7 conventional right now.  Creative financing is the way to go with fewer hoops to jump through.

Fannie Mae allows each property owner to finance up to 4 financed  properties via conventional loan program under the general Fannie Mae  Guidelines. A property owner can have an owner occupant property, a  second home, and investment home financing and as long as it is up to 4  financed properties, standard Fannie Mae Guidelines apply.

Here are the general Fannie Mae Guidelines on Conventional Loans.

• Minimum credit scores required to qualify for a conventional loan is 620 FICO credit scores.
• Maximum debt to income ratios to qualify for conventional loans is 45% DTI.
• Minimum down payment for owner occupied primary residential properties is 3% for first time home buyers and 5% for home buyers.
• Second home financing require a 10% down payment minimum.
• Investment  home financing require 15% for single family home investment financing  and 20% to 30% down payment for multi unit properties.
• Reserves are required on investment property financing.
• 4 Year Waiting Period to qualify for a conventional loan after a Chapter 7 Bankruptcy discharged date.
• 2 Year Waiting Period to qualify for conventional loan after Chapter 13 Bankruptcy discharged date.
• 4 Year Waiting Period after short sale to qualify for a conventional loan.
• 4 Year Waiting Period after deed in lieu of foreclosure to qualify for conventional loan.
• 7 Year Waiting Period after foreclosure to qualify for a conventional loan.
• If  you have a mortgage part of bankruptcy , the waiting period is four  years from the discharged date of the Chapter 7 Bankruptcy and the  foreclosure can be recorded at a later date after the Chapter 7  Bankruptcy discharged date.

Here are the 2017 Fannie Mae 5-10 Financed Properties Guidelines:

• A real estate investors cannot own no more than 10 Financed  Properties between one to four residential units which includes their  primary home, second home, and investment homes.
• On a property purchase, a 25% down payment on the property  purchase will be required for 1-unit property and 30% down payment will  be required for 2-4 units
• Cash-out refinances are not allowed past 5 properties. Property  owners who own 5-10 financed properties can do a rate and term refinance  conventional loan under 2016 Guidelines On Fannie Mae 5-10 Financed  Properties, however,  30% equity is required for all property types.  This applies to one to four unit properties.
• Minimum credit score of the mortgage loan borrowers must be 720 FICO credit scores or higher.
• Fannie Mae requires that there cannot be any mortgage lates in  the past 12 months on any of the borrower’s mortgaged properties. No  late payments on any other monthly debt payments are allowed.
• Waiting period after a bankruptcy and foreclosure is extended to  a mandatory 7 year waiting period after bankruptcy and foreclosure.
• Mortgage underwriters will require 2 years income tax returns on  both personal tax returns and business tax returns and all rental  income on all properties needs to be documented.
• Under 2017 Guidelines On Fannie Mae 5-10 Financed Properties,  the borrower needs to have reserves of six months of principal,  interest, taxes, and insurance on all of the borrower’s properties.

How to reach the maximum of 10

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