Investment property mortgage limit? (PMI, loan, credit check, requirements)

[Lacerta]

Someone told me today that there is a current federal regulation that says that a person can only have mortgages on 3 non-owner occupied properties. Basically, if you already have 3 loans on investment properties, that you cannot get another one in your name.

Is there any truth to that at all?? Can anyone direct me to more information on this regulation if it does, in fact, exist. I googled, but didn't find anything.

[ShaneSA]

I have 6 at the moment. They are all conventional. No federal regulations that I know of. Maybe it has to with biying an FHA house, but you can only have one of them at a time...I think.

[OC Investor2]

I actually called a mortgage broker today on just this question. I was told the underwriting guidelines are changing and now you cannot get non owner-occupied financing once you have 4 mortgages. My understanding is you can still get a O/O mortgage if you have 9 other mortgages, But non O/O is capped at 4.

I'll be curious to see what any mortgage pro's will say on this.

[brokerdave]

ive never heard this at all and i am not aware of such a thing. that regulation doesnt make any sense for anyone who makes there income from rental properties.

i just financed a purchse for an investor with 17 properties, all rented out. that is what he does. i had no problems, he put 20% down, got 5.375%.

[davidhomes]

Some of the lenders are cutting off at 4 financed properties. It is just their underwriters and guidleines not wanting to fund more properties than that. I have several lenders that will do portfolio loans and will finance with unlimited properties. It just depends but most lenders have cut back to 4, but not all.

[brokerdave]

Originally Posted by brokerdave

ive never heard this at all and i am not aware of such a thing. that regulation doesnt make any sense for anyone who makes there income from rental properties.

i just financed a purchse for an investor with 17 properties, all rented out. that is what he does. i had no problems, he put 20% down, got 5.375%.

i should mention that he also purchased 4.995 in discount points also. something that is very beneficial for him to keep his cashflow and minimize his obligations.

he is the kind of investor who makes extra payments on his properties.

[rcarrillo]

The 4 property rule is something that lenders are imposing. Quite a few of the ones I work with are doing this now. Fannie Mae does have a rule that they won't allow more than 10 properties (pretty sure that is still the case) but lenders can stop at any # below that they want. Not sure why 4 mortgages was determined to be the standard, but that seems to be the case.

Some lenders still follow the Fannie Mae rule. If it is not being sold to Fannie or Freddie and the lender is going to hold them in their portfolio... they can do as many properties as they want.

[Investment Loans]

Today's mortgage market is tough, no doubt. Conventional lenders
have really tightened up on all fronts. Some of the most recent
changes include reduction of maximum financed properties held to 4
from 10 and 6 months of seasoning time for cash out. Larger down
payments are typically required as well since PMI is no longer
available on investment properties.

So this leaves investors with several options.

1. use commercial/bank loans which dont get sold off into the
secondary market. no limit on the # of properties owned and financed
and no limitation on seasoning. Max ltvs are usually 70-80% but
really depend on how well the property cash flows. These lenders
look at the debt service ratio of the subject property. Since these
are usually amortized over 20yrs with a 3-5yr balloon the loan
amounts might be lower than expected to satisfy the lenders debt
service requirement. Rates and cost are pretty decent on these types
of deals.

2. Purchasing with less than 20% down can be accomplished in several methods if the investor is buying under market value. Seller finance then use a conventional lender to do a rate/term refi should they meet the requirements (there's no seasoning period to refi an existing purchase mortgage, so the higher value is used to create the ltv rather than the lower sales price). Same thing but use hard/private money rather than
seller financing. Some local private lenders may be cheaper than the
national sources. In the first option I address using
commercial/business loans. This applies to purchases as well but
most of these sources will want their ltvs at 75-80%. Once the
borrower has established relationships with the lenders they will
start looking at these deals with less risk and can fund based upon
the higher value instead of the purchase price. Cross
collateralization is a great way to get investors into properties with
less money of their pocket too.

3. Portfolio lenders are similar to commercial lenders and may even
offer 30yr loans. However, rates and cost may be higher than
traditional loans.

4. Owner financing was mentioned previously but I wanted to point
out a program that helps buyers and sells come together for those
tough to get done transactions. With this program sellers can sell
at almost full retail while still working with borrowers having less
than desirable qualifying criteria.

Previous to the subprime market opening several years ago, note
buyers had a large market for helping finance deals that most banks
couldn't get done. Their business slowed though over the years
because of the hot subprime market. Since this market, along with
even some "golden investor" markets have disappeared note buyers are
back and looking to help structure deals.

The basic concept is that a seller would sell a property for full
retail and offer owner financing. The key buyers for this type of
financing would be "golden investors" or non traditional home
buyers. When a seller has found a prospective buyer they introduce
the buyer to the note buying investor (actual financing source). The
note buying investor will have qualifications for the buyer but with
lower standards that banks just aren't touching right now. If the
note buyer is satisfied with the buyer's qualifications then the deal
moves on.

At closing, the buyers puts down 5-10% and then sign a note with the
seller for the remaining funds. The seller doesnt get stuck with
this note though; so they wont have to service the note and collect
payments for years out. The note is actually sold at closing to the
note buying investor who has already reviewed the buyer's info.

Keep in mind though that the note buyer is not going to pay full
value for the note. There would be no benefit in that for them. So
they will discount the purchase of the note by 10-15%. So if the
note was for $100,000 the note buyer would pay $85,000-$90,000. The
seller gets those funds at closing along with the initial down
payment that the buyer brought in.

Full retail with about 10-15% off the structured note could have much
better results for all parties seeing that the alternatives could be
longer listings and/or no deal at all.

5. For those investors wholesaling I suggest to use a "1 day" closing loan. These are for doubling closings where the state or title company doesnt allow dry closings. Wholesalers can receive 100% of the purchase price and closing costs. There's no application, no verifications, no credit check, no appraisal. The end buyer's finacing must be lined up and all parties must close at the same title company.


Ben Carmona

[zenith191]

Same here. I have 6 mortgages. I tried to refinance one earlier this week and was denied because I have more than 4. I have good credit, a very low debt to income ratio and large capital reserves. I am in bubble-free Texas.

Seems like a strange underwriting standard to me: "Hmmm, lets see. We'll deny the investor who has been doing this successfully for years and instead give a loan to the newbie that is buying his first rental property".

I think we're heading back to the Carlton Sheet days of wrap around mortgages, subject to financing and other creative financing that was neccessary in the 80's when interests were so high as to preclude people from getting mortgages.

[SmartMoney]

It's a Fannie directive and not all that complicated to find financing with a portfolio lender. We allow up to 12 investment properties (not more than $1.5M in mortgages w/ us).

Also, Fannie and FHA have ceased allowing credit for rental income if there is "insufficient equity" (defined as less than 25% equity documented by appraisal) in the rental property. The borrower must qualify carrying both mortgages w/out the benefit of any rental income. Again, portfolio lenders don't all follow that new rule.

Always question what you hear. Even industry professionals get mixed up and quote items as gospel and while it may be gospel for them, it's not for the rest of the world. And unfortunately, many want to share their horror story, because they aren't happy until your hopes have been thoroughly rocked.