At the Fannie Limit - Beyond Ten Financed Properties

How many financed properties can I have? Am I at the Fannie limit? If so, what now?

If you are actively asking yourself these questions, then congratulations - you’ve made strides in your investing career and you can certainly call yourself a pro. Unfortunately, there are too many myths and false information in what you can and cannot do once you reach a certain threshold. Fortunately, the rules are pretty clear, so in the spirit of shedding some light on this issue, here’s the quick guide:

1. If you already have 6 financed properties, you need at least a 720 FICO score to get a mortgage on your 7 - 10 properties.

2. Fannie Mae caps you at 10 financed properties at the same time.

3. A property will be considered a financed property regardless of the program you secured the mortgage with. An FHA loan + Conventional loan + VA Loan + Privately Held Loan (secured by real estate) + The house you live in (if it has a mortgage) are all counted towards your ten property limit.

4. The limitation is only on the amount of properties with a mortgage, not the amount mortgages that property has.

5. Ok… So what properties are NOT part of that limitation?

• Commercial properties
• +4 multifamily (MFH)
• Timeshares
• Lots and manufactured homes on leased land.

6. Many investors come to me concerned that they are not going to be able to qualify based on cash reserves. This is mainly because the calculation is not as straight forward. For a normal investment purchase, a 6 month mortgage reserve suffices but with multiple investment properties it is a bit different. You still need the 6 month mortgage reserve but you need a percentage of the principal outstanding on the other properties to qualify.

• 2% if the borrower has one to four financed properties,
• 4% if the borrower has five to six financed properties, or
• 6% if the borrower has seven to ten financed properties.

Example 1 – I’m buying my 4th investment property and I have mortgages on the others while renting the home I live in. I will need a 6-month cash reserve on my 4th property PLUS 2% of the unpaid principal on the other 3.

Example 2 – I have a mortgage on the house I live in, a financed second home, five investment properties with mortgages and I’m trying to get my 8h property financed. For the house I live in I do not need to show reserves, so my real number is 7 (As in the 7th financed property for cash reserves). However, my second home will be treated as an investment property for cash reserves purposes. Therefore, I will need 6 months’ mortgage payment reserve for the 7th investment property I’m acquiring and 6% of the unpaid principal on the 5 investment properties and the second home.

7. How to count financed properties: The rule here is that if the borrower is personally obligated and the properties are residential single or multifamily property below 4 units, the multiple financed property policy applies.

Example 1: Borrower Carlos and Co-Borrower Leslie want to finance their primary residence as a couple. At the same time Carlos owns 3 financed investment properties and Leslie owns a financed investment property and a financed second home. Both borrowers have 6 properties.

Example 2: Carlos and Leslie each have their own financed primary residence but they own together 5 investment properties. If they were to acquire another property, that property would be considered their 8th.

Example 3: Carlos has two investment properties and through an LLC, which he owns 50%, he purchased five investment properties. Carlos is not personally obligated on the properties under the LLC so he only has to count 2.

Please note that all these rules are based on the Fannie Mae guidelines. I am intentionally excluding any Freddie Mac rules because its guidelines cap at six the number of financed properties.

So, you’ve reached your cap of 10 financed properties and want to keep expanding your portfolio? No worries.

All you need to do is shop around for a portfolio lender. The main difference between a portfolio lender and the lender you dealt with in the past is that the latter “flips” your mortgage onto the secondary market (Fannie and Freddie) while the former keeps your loan on his books. Keeping the loan in their portfolio raises an important issue – You are using their deposits. So they are free to lend in any way they see fit. Consequently, you’re going to see rates and terms that are a bit higher than what you’re used to so far.

That being said, not all is lost when reaching out to portfolio lenders – Here is where it pays to have a relationship with your banker! These lenders do not have limitations in regards to asset class, so you can ask for a loan on a MFH with more than four units, a commercial loan or even a blanket line of credit guaranteed by the equity in your real estate portfolio.

Whether you are ready to transition beyond the ten financed properties or looking for your first “fix and hold”, it pays to strategize and think long term.

You got a deal in mind? Feel free to reach out!