There are many ways to finance more than four properties as an investor even though banks may tell you it is impossible. There are ways to get loans on 10, 20 or even 100 properties. There are traditional banks that will finance more than four properties and portfolio lenders who will lend on many more than four properties if you know where to look. There are even national lenders that specialize in rental property loans who prefer to lend on huge packages of rentals. When you hear a bank tell you it is impossible to get more than four mortgages, they are only talking about their bank. Don’t give up hope!
Why don’t most banks finance more than four properties?
I think long-term rental properties are one of the best investments. Part of my retirement strategy is buying as many long-term rental properties as I can. The problem with buying many properties is most lenders don’t like lending to an investor who already has four mortgages. Most big banks will tell you it is impossible for them to give a fifth mortgage to anyone. There is a way to get a loan on your fifth, sixth or twenty-fifth property, the trick is to find willing banks and if possible, a portfolio lender. I have 20 long-term rentals, with loans on all of them!
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon bestseller.
How to get financing on your first rental properties
When I bought my first rental properties I used a mortgage broker to fund my deals. He did a great job of finding the right lender for my needs. However, the lender still required me to jump through multiple hoops, send in every financial detail of my life for five years and justify any deposit made into my account over $1,000. As a Realtor, I have a lot of deposits over $1,000, and I spent hours and hours hunting down each deposit and explaining exactly what it was for. After bending over backward for the lender, I still had to put 25% down to get a decent interest rate. The sad part was I did not have four mortgaged properties at this time, I only had two. When you want to finance more than four properties is when it really gets tough to get a new loan!
Who are some conventional lenders that finance more than four properties?
It is possible to finance more than four properties with a traditional bank. Technically Fannie Mae guidelines say investors should be able to get a loan for up to 10 properties. Even with these guidelines in place, many lenders still won’t finance more than four properties because it is too risky for their investors. If you are diligent and make enough calls you should be able to find a lender who will loan up to ten properties. If you want to try an easier route, call a mortgage broker who can help you find a lender who can get it done. These are the requirements for most lenders that will finance from four to ten properties.
- Own between 5-10 residential properties with financing attached
- Make a 25 percent down payment on the property; 30 percent for 2-4 unit
- Minimum credit score of 720
- No mortgage late payments within the last 12 months on any mortgage
- No bankruptcies or foreclosures in the last 7 years
- 2 years of tax returns showing rental income from all rental properties
- 6 months of PITI reserves on each of the financed properties
Can you Refinance with a conventional lender with more than four mortgages?
If you want to refinance any of your properties and you already have four mortgages, most banks will only allow a 70% loan to value ratio and probably won’t allow you to take any cash out. Personally, I think this type of refinance leaves a lot to be desired. One of the keys to my rental strategy is being able to take cash out when refinancing my rentals. I then take that cash out money and invest in more rental properties. Lenders will say it is too risky to do a cash-out refinance for investors with more than four mortgages. In my opinion, if an investor has the cash to put 20% down and has the cash reserves needed, they are less risky than the first time home buyer putting 3.5% or less down.
Homepath is a great program for investors that want to finance more than four properties
There is a special program Fannie Mae offers on their foreclosed properties. Fannie Mae uses a program called HomePath to market and sell properties they have foreclosed on. If an investor purchases a Fannie Mae HomePath property, Fannie Mae says they will allow banks to loan on up to 20 mortgages for one investor! Again, finding a lender that will be okay with those guidelines is very tough. Last I checked, Prospect Mortgage worked very close with Fannie Mae and may allow up to 20 mortgages for an investor. Fannie Mae also only requires investors to put 10% down on investor loans on their HomePath properties. *This program has been discontinued by Fannie Mae.
Why will a portfolio lender finance more than four mortgages and possibly many more?
Local lenders who offer portfolio financing are another option (my favorite) for investors. It can take some research, time and networking to find a portfolio lender, but they have much looser lending guidelines. Portfolio lending means the bank is using their own money to fund deals, and they don’t have to use Fannie Mae guidelines. My portfolio lender has no limits on how many loans they will give to investors as long as they have the cash reserves and income to support the mortgages. They allow 20% down on those properties and don’t require your life’s history to give you the loan.
There are some drawbacks with a portfolio lender. With my local bank, they do not offer a 30 year fixed mortgage. They offer 15 year fixed, 5/30 and 7/30 ARMs. For me, a 5/30 ARM is perfect because I want the lowest rate possible and I want to pay off my loans quickly (I have since changed this strategy as I no longer pay off my loans as fast as I can). The local bank charges slightly higher rates and origination fees, but not by much. My last loan on my tenth mortgage was a 5/30 ARM at 4.5 percent (July 2015). This interest rate was .5% higher than my other loans because it was my tenth mortgage. The local bank may require you to move all your accounts over to them, but that is a small price to pay for investor loans.
How to find a portfolio lender who will finance more than four properties
There is no guide or website that lists all the portfolio lenders, at least that I have found. In order to find a portfolio lender, it takes some legwork. The first step is to ask everyone you know in the real estate industry. Ask Realtors, lenders, title companies, property managers and other investors. Local real estate investor clubs may be able to provide information on portfolio lenders as well. If you can’t find a portfolio lender through word of mouth, try calling local banks. Ask banks if they loan their own money, what their policies are for investors, and if they don’t offer the right terms ask them who might. Here is a great article with much more information on how to find a portfolio lender.
How to find a national lender that will finance more than four mortgages
There are some new programs available from national companies that allow investors to get bulk loans on their rental properties. There are also lenders that will offer individual loans on rentals as well. The loans are much different from traditional single-family loans, but these companies lend nationally. Many of these companies will not look at debt to income ratios when qualifying buyers, but the property itself. The rates are a little higher with these types of loans. To get more details on the program check out this article.
There are ways to finance more than four properties even though many people will tell you it is impossible. Try talking to a mortgage broker who can get you in touch with banks that will finance more than four properties. If you have a big goal like myself like buying 100 properties in the next ten years, then you will need a portfolio lender who will finance more than four, more than 10 and more than 20 properties.