Real estate investing has become an extremely popular and profitable choice, and many investors choose to purchase multiple properties at the same time – either to rent them out or to sell them after renovations. Believe it or not, there are limits on the number of active mortgages you can have at any given time, but there’s also a way to get around those limitations. Here’s what you need to know.
Fannie Mae Limitations
Fannie Mae is the leading source of mortgage financing in the United States. It was founded in 1938 as a way to provide affordable and accessible mortgages to people across the country, and it’s still the biggest entity in the mortgage industry to this day. It’s important to note that Fannie Mae does not directly provide mortgage loans; rather, it purchases those loans and guarantees them to financiers through a secondary mortgage market. It is like Freddie Mac, which is another government-sponsored program that ensures funds are available to mortgage lenders.
Fannie Mae once imposed strict limitations on investors with a limit of just four mortgages at any given time. Though four mortgages were more than enough for the traditional homeowner, investors reliant upon Fannie Mae for obtaining mortgages were severely limited. Recently, though, that limit was raised to 10, which provides more opportunities for investors to increase their assets and cashflow.
Traditional Banks
It’s important to note that Fannie Mae’s limitations only apply to loans you secure through traditional financiers, such as your bank or credit union. Once you reach that 10-mortgage limit, traditional banks will turn you away until one or more of your current mortgages has been completely paid off. Furthermore, when applying for second and subsequent mortgages, banks’ reluctance to lend to you will increase. As a result, you’ll almost certainly be faced with higher down payment requirements and significantly higher interest rates – and that’s regardless of your credit rating.
Private Lenders
Private lenders are not affiliated with Fannie Mae in any way, which means the limitations you could experience in a traditional bank will not necessarily apply with a private lender. In fact, many investors have only one Fannie Mae mortgage – the mortgage on their primary residence – and turn to private lending for all their investment funding needs. There are no limits on the number of mortgages you can obtain through a private lender, and in most cases, you gain access to funds far more quickly, which is crucial in the fast-paced real estate investing world. Private lenders offer more flexible terms, require less documentation, and just make the process simpler overall.
If you are looking to expand your real estate investment portfolio, you can have up to 10 Fannie Mae mortgages at the same time. However, most real estate investors agree that second, third, and all subsequent mortgages should be acquired through a private lender – ideally, one that specializes in real estate investments. With simpler terms, more flexibility, more loan types, and no real limits, they work for real estate investors rather than against them.