How Many Mortgages Can You Have?

If you're excited to purchase a holiday home, buy a home nearby for aging parents or start investing in rental properties, you may need more than one mortgage. But how many mortgages can you have? Usually, the maximum number of mortgages you can have is 10, but whether you qualify for 10 will depend on financial factors and the lender. Learn the pros and cons of multiple mortgages and how to increase your chances of qualifying. 

The Maximum Number of Mortgages an Individual Can Have

Most mortgages are backed by Fannie Mae or Freddie Mac, abbreviations for the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corp., respectively. Both serve similar purposes. 

How many home loans can you have? Fannie Mae, allows up to 10 conventionally financed properties. And Freddie Mac allows up to 10 one- to four-unit financed properties, including your primary residence. So while you could get up to 10 mortgages, lenders are often reluctant to offer that many. You may have to make a higher down payment, demonstrate greater cash reserves and have a high credit score. There are specific extra requirements for mortgages five through 10. 

Here are the key guidelines set out by Fannie Mae to qualify for five to 10 financed properties. You'll need:

• A 720 credit score
• 25% down on a single-family home, 30% down on a multifamily home (a two- to four-unit property)
• Have the funds to cover principal, interest, taxes and insurance (PITI) on all properties
• Two years of tax returns demonstrating rental income
• No delinquencies of 30 days or greater on a mortgage
• No late mortgage payments over the last year 
• No bankruptcies or foreclosures in the last seven years
• A completed Form 4506-T for tax purposes

Even with those requirements, not all lenders offer FNMA 5 – 10 financed property because of potential additional risks to the lender.

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3 Reasons for Having Multiple Home Loans

Can you have two mortgages? Yes, it's actually quite common. Multiple home loans make sense for many people to secure real estate investments, buy a vacation property or make upgrades. For example, if you're renovating your primary residence, you may need to take out a second mortgage. Below are the most common reasons. 

1. Purchasing Another Property

Purchasing a second or vacation home is one of the most fun reasons to get a second mortgage, but it comes with the same serious financial considerations. If you are in the process of moving to a different city, you may need to carry two mortgages until you're ready to sell the one property. If you want to help family members move nearby or purchase a holiday home, you could need more than two mortgages. As long as you meet the financial requirements, securing a second mortgage is more common than you might think.

2. Investing in Real Estate

Investing in real estate can be a smart strategy to build long-term wealth. As long as rental income is more than mortgage payments plus expenses, you'll put a little cash in the bank each month while gaining ownership of a new property. Lenders may require a higher down payment or offer a mortgage with a higher interest rate on rental properties. 

3. Cash-Out Refinance

A cash-out refinance can tap into your property’s liquidity to renovate or use the cash for something else. Be sure to make this decision carefully, as you'll be using the built-up asset value of the mortgage for another purpose and start repaying the mortgage again. 

A partial cash-out refinance for renovations that will improve your home's value more than renovation costs can be a smart move. Likewise, a cash-out refinance to start a new business venture can make sense in some cases. If you can, talk to a trusted financial adviser before taking a cash-out refinance. 

Advantages of Having Multiple Mortgages

Planned carefully, there are major advantages to having multiple mortgages. The main benefits include:

Potential for Income Generation

Income generation on rental properties is a good reason to take out an extra mortgage. If you’re purchasing real estate investments, you could potentially earn additional income with each rental unit. Here's an example:

If the monthly mortgage payment on a two-bedroom, two-bathroom apartment is $1,000, and average monthly expenses, including maintenance, repairs and taxes, are $450 a month, your total monthly expenses are $1,450. 

If you can rent the property for $2,200 per month, you'll have an average monthly income of $750 per month. 

If you have multiple real estate properties, that could be $2,000 or more in monthly income while paying off the mortgage and building asset value. This is assuming you can keep the properties rented continuously. 

Diversification

Holding real estate properties, in addition to other types of investments, can diversify your portfolio. Building a diverse investment portfolio can protect you in market downturns. Real estate is a historically stable investment product. Likewise, owning multiple properties in different areas diversifies your real estate portfolio. Make sure you can cover monthly mortgage payments when they're not rented.

Tax Benefits

Holding multiple mortgages has tax benefits. Specifically, you can deduct interest payments. You may also be able to deduct insurance and repairs expenses. Learn more about real estate tax deductions here. Check with an accountant to confirm what works in your situation. 

Disadvantages of Having Multiple Mortgages

While there are many pros to having multiple mortgages, they are not without risk, as the 2008 housing crisis proved. Below are the main disadvantages to weigh before deciding to get multiple mortgages.

Increased Monthly Payments

With each additional mortgage, you'll increase your total debt and monthly payments. If you have four properties, each with an average monthly mortgage payment of $1,000, your base debt before taxes, maintenance and expenses is $4,000. When taking on multiple mortgages, be sure your income is stable and can cover monthly payments in case of vacancy.

Debt Obligations

Like higher monthly payments, carrying multiple mortgages will increase your debt-to-income ratio. Assuming rental properties are occupied and tenants make rental payments on time, your debt-to-income ratio may improve. But that depends on finding and retaining reliable tenants. 

If you're not planning to rent the property, your debt-to-income ratio will increase with each additional mortgage. Failure to pay your debt can result in a foreclosure.

Potential for Higher Interest Rates

With each additional mortgage, you could face higher interest rates. Even if you have an excellent credit score and a high income, taking on multiple mortgages can lead to higher interest rates on each subsequent mortgage. In that case, you'll pay more in interest over time. 

How to Qualify For Another Mortgage in 4 Steps

If you're ready to take on a second mortgage and have your finances in order, follow the steps below.

1. Review Your Credit Score

You can check your credit score at annualcreditreport.com. Officially, Freddie Mac or Fannie Mae lenders accept a credit score of at least 620 or better. But having a higher credit score may result in better interest rates. 

If you want to increase your credit score before applying, make sure to reduce debt, including credit card debt, make on-time payments and consider asking your credit card issuers for a higher credit limit. 

You can also get credit for on-time utility payments through a rent-reporting company. Becoming an authorized user on someone else's credit card can also boost your credit score, assuming their score is significantly higher. 

2. Gather Financial Documents

To apply for a second mortgage, you'll need the same documents as you need to apply for your first mortgage, including proof of income, bank statements, tax returns and debt obligations. Be prepared with:

• Government-issued ID 
• Social Security number
• Pay stubs for proof of income
• Bank statements for the past two to three months
• Tax documents, including W-2s
• Investment account statements, including 401(k), 403(b), individual retirement accounts (IRAs), stocks, bonds and mutual funds
• Information on all debts

3. Calculate Your Debt-to-Income Ratio

Lenders typically look for a debt-to-income ratio (DTI) of 43% or less, although some lenders will approve mortgages for debt-to-income ratios up to 50%. Lower ratios may result in better interest rates. Know your ratio before applying, and see where to reduce debt or increase income to improve your DTI ratio. 

4. Review Potential Lenders

You can shop around for lenders. Look for lenders that specialize in second mortgages as they will better understand your situation and profile. Compare interest rates and terms to get the most favorable offer. 

Factors Affecting Your Ability to Have Multiple Mortgages

Lenders look at your complete financial picture, but to do this, they use your credit score, debt-to-income ratio and stable income. Below is what you should know about each of these factors. 

Credit Score

Credit scores of 620 and above are usually sufficient for mortgage approval. A score of 700-plus is considered good, and scores of 740-plus are considered very good. Higher credit scores can lead to lower interest rates or higher approved loan amounts. Find more tips to improve your credit score here. 

Debt-to-Income Ratio

Debt-to-income ratio is the ratio of total income to total debt. A debt-to-income ratio of 43% or less, including the new mortgage, is usually required for loan approval. Some lenders may approve mortgages with a debt-to-income ratio of up to 50%, especially for nonqualified mortgages. 

Income Stability

Lenders want to know that you can pay off the mortgage and make on-time payments monthly. Income stability is usually demonstrated through paystubs or W-2s, investment account statements, bank account statements, savings accounts and other sources of income. 

If you get beyond four financed properties, you'll need to meet additional requirements. You'll need:

• 25% down payment for a single-family rental property
• Six months of PITI in reserves per property 
• On-time mortgage payments on all existing mortgages for the last 12 consecutive months
• No bankruptcies or foreclosures during the last seven years
• Personal tax returns for the past two years showing the net rental income from all existing investment properties
• A credit score of at least 720 if you are financing between seven and 10 homes

Tips for Managing Multiple Mortgages

If you're managing multiple mortgages, you'll want to treat it like another job to protect your credit score and keep building asset value. For this, before sure to:

• Keep track of dates and payments. It can help to set reminders or alarms or set up automatic payments from your bank account. 
• Have a contingency plan. Unexpected expenses can come up on any type of property. You'll want to keep enough savings to cover expenses, taxes and rental vacancies. 

How Many Conventional Loans Can You Have?

For many people, the freedom to get a second mortgage can open new opportunities and a new income stream. Whether you need two mortgages to add a vacation home or you want to build a real estate investment business with seven properties, you could qualify for up to 10 conventional loans. You may need to demonstrate additional savings, make larger down payments and take on higher interest rates, but if done carefully, the option to get multiple mortgages can give you additional freedom and long-term assets. 

If you want to consider other options, learn more about investment property loans and investing in mortgage REITS.

Frequently Asked Questions