How many rental loans in your name?

Question

So I've heard alot of talk on the podcasts and this forum on banks limiting the number of mortgages that you can have for rental properites. Some have said 4? some have said 10

I am 10 days from refinancing a rental property and it has been a tedious process. In addition, its not that big of a loan. We are talking 75k. I refinanced with a local bank but found no fewer hurdles to jump through.

I got this rental property with a personal loan which i owe 78k. Bank says it has pushed my DTI ratios higher so they wont refi me for the 75% of appraised (appraised value is 118k) So in order to get the loan at the number I want, the payoff of the personal loan is going to be at closing,. Which is fine because that's what i was going to do with the money anyway. The rental property is bringing 1000/mo in revenue.

Now, I make a good living in my W-2 job and my credit is excellent. I have a mortgage on my personal res for 369k, and I have one car loan for about 14k left on it. My cash reserves are plentiful. My question is how are people getting multiple morgages (like in excess of 4,5, or 6). I understand commercial lenders but that's not what im talking about here. I'm talking about conforming loans.

I've borrowed from huge national lenders and now this lender who is a local bank, I didn't find the standards, processes, qualifications any different tbh. The local one was cheaper in fees so I chose them. And i can go down the road and get face to face if I need to.

Eric Veronica · Answer

@Jeremy England You can finance up to 10 properties in your name using conventional 30 year fixed mortgages. In these forums there is a consistent theme to "call small local banks and credit unions" and that isnt bad advice. In my humble opinion, the more important attributes are a bank who understands investment properties and a loan officer who works regularly with investors. You would wouldn't order Prime Rib from McDonalds just because it is 2 blocks from your house would you?I also see a lot of investors on this site talk about issues with DTI when they get into multiple properties. There are situations where this is true but most of the time I am perplexed by this issue. if you are buying a rental property then the lender should be able to use proposed rental income when calculating your debt ratios. This is accomplished by the lender ordering a comparable rent schedule (form 1007) when they order the appraisal. The 1007 gives the lender a market rent for the area. An investor friendly lender should be open to using this proposed rent.Let’s say you currently make $10,000/month w-2 income. You have an owner occupied mortgage payment of $3000. Car payments of $800/month and student loans of $900/month. This totals monthly debt of $4700. With a monthly income at $10,000 you are at a 47% ratio. No way you will qualify for an investment property mortgage. right?Not so fast. Let’s say this property you are purchasing will result in a $1000 monthly payment. Let’s also say that 1007 rest schedule form comes in with expected monthly rent of $2000/ month. Our approach is to hit the rent with a 75% vacany ratio which gives you expected monthly rent of $1500/month. We then deduct the $1000 mortgage payment from the rent and you end up with $500 in additional monthly income. The awesome part is that the $1000 monthly payment is not counted against you at all because it is completely negated by the rent. The awesome-er part is that the $500 expected income can actually be used as qualifying income!Debt ratio before rental purchase $4700/$10000 =47%Debt ratio after rental purchase = $4700/$10,500=44.7%Taking out a new $1000/month mortgage actually lowered your debt to income ratio!

Max T. · Answer

If you are buying cash flowing rental properties and claiming the rental income on your tax returns, your DTI will improve with each new purchase and qualifying for the next loan becomes easier.

Anthony Gayden · Answer

I have 5 mortgages right now. I was able to use income from my rental properties to offset a great deal of the DTI. I also completely eliminated all of my other debts, I have no car loan, no credit cards, and no student loan debt. This means everything is available for real estate.Keeping that in mind, I still am almost tapped out in terms of conventional mortgages through banks. I could probably add my wife's income to mine in order to get the next few mortgages.Outside of that, it looks like private/hard money lenders as well as commercial loans are the way to go.

Adam Macias · Answer

This was very thorough and explained a lot of questions I had myself. Thanks!

Chris Whynder · Answer

at what point did you have to put down 20%?

Matt H. · Answer

@Jeremy England Sure the government and lots of banks will put limits. But that doesn’t mean you can’t find a way to get more. I have about 40 residential loans in my name and can get as many as I want. All with outstanding terms. Sure I had to work to get there but it is doable. So not to worry, you’ll find a way.

Chris Mason · Answer

Short version is they are working with investor friendly lenders that "count" the rental income to offset PITI and make DTI work from day 0.Most lenders and loan programs (the ones with the very best rates and lowest fees) cut you off at 4 and do not aggressively count rental income. Others go to six and might count some of the rental income, sometimes. And there's a minority of lenders and loan programs that have no overlays, follow vanilla Fannie, and go to 10 and count rental income immediately even with zero landlord experience. To make things more complicated, some lenders only have a single Fannie offering. Other lenders have multiple parallel FNMA/FHLMC programs with some being more conservative (priced better due to low risk) and others more liberal (priced worse due to risk or perception thereof).And then to make things even more complicated, you have the loan originators themselves - the person you speak with. None of our licensing training or testing includes anything about rental property financing, it's all OJT, and you can go a very successful 30 year career without ever doing a single rental property loan or learning anything about it. Fortunately these folks are pretty easy to spot since they will tell you that "rental income needs to appear on two years of tax returns for it to count," which is factually incorrect per Fannie.

Jeremy England · Answer

Thanks, this is what i thought should be how it is done. Im not sure my bank is accounting for the rental income in the dti.