Structuring mortgages around 4 property rule

[Damon J.]

Hopefully you can help me undertstand something in regards to the 4 unit rule. Here is my scenario:

1) Primary Home - $300K mortgage
2) Investment Home - $100k mortgage
3) Investment Home - $100k mortgage
4) Investment Home - $100k mortgage

If I get a 5th property which is not 1-4 units that will be at a higher rate. After I own 5 what happens if I sell my primary home and want to get a mortgage on a bigger home in the future?

Would it be my fifth mortgage and thus be at a higher than average rate then conventional financing even though it is owner occupied?

I am trying not to screw myself as I do plan to upgrade homes in 2-3 yrs. How can I avoid this scenario??

If I was to purchase that fifth house in the scenario above using a commercial loan would it count against my fannie mae count? In other words would they look at it as 4 conventional financed homes and one commercial mortgaged home? If so would I then be able to sell my house and purchase another under conventional financing rules?

Appreciate any thoughts.

[Bryan Hancock]

A mortgage broker can likely give a better answer, but here is my understanding:

1. You have 4 Fannie/Freddie "bullets" (now 10...but the first 4 are the best loans)
2. You can get other forms of financing that don't consume these bullets and later use the bullets

So you just want to make sure you line up your financing such that you are not consuming your 4th bullet with an investment property. This may necessitate a portfolio loan with a local lender. I don't think you will be able to get FNMA loans 5-10 without using loan 4. So I THINK you will be limited to portfolio loans until you upgrade your primary residence. Once that happens you can refinance your portfolio loans or keep them and consume FNMA loans 5-10 to continue financing rentals.

That is my understanding at least...Maybe one of our broker extraordinaires can correct anything that is wrong in my post.