Question from a Novice

[Eric Johnson]

I just viewed a potential investment property that's pretty much a turnkey with some minor repairs. However, I got to wondering, can one obtain multiple conventional loans? In other words, if I invest in this property via using a conventional loan, can I get another said loan for another investment property? I mean, at some point the banks are going to say no because of the number of loans correct? I guess at some point I would have to seek private lenders because they require less scrutiny. Is my thought process correct here? Thanks in advance.

[Jon Holdman]

A "conventional loan" aka a "conforming loan" is one that conforms to Fannie Mae and Freddie Mac's rules for mortgages. Banks make loans that abide by these rules so they can sell these loans to Fannie and Freddie. Those rules do change from time to time.

Currently, its pretty easy to get up to four conventional loans. So, you could buy four properties with conventional loans, provided you meet the criteria. Or, if you own a residence and its mortgaged, then three investment properties.

Once you have four, these rules allow you to go up to 10 total mortgages. Most lenders won't do mortgages on properties 5-10, so you will have to do some searching. As in talking to dozens of lenders, not just a handful. The rules are a little stricter. Slightly higher credit scores required. Six months PITI reserves for all existing and the new property. But these loans do exist.

Some banks do portfolio loans. I'm aware of one here in Denver that will make loans on as many properties as you want. They limit the term to 15 years rather than 30, but the rates are comparable to conventional loans.

You mention private money. In my book, that means private. Someone you know personally who will lend you money. If you answer an ad, or someone responds to your ad, its almost certainly hard money. That means double digit rates and lots of points and short terms, 6-24 months. No good for long term hold. Private means someone you know who has money they would lend at, say 6-8% for a longer term. Perhaps 15 years, but more likely they will want a balloon after 5 years or so.