How Many Homes Can I Own?
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Owning real estate can be an excellent investment as a way to build wealth and generate passive income over time, whether you purchase properties concentrated in one area or buy a number of properties all over the country.
If you decide to start buying multiple properties with financing, loan officers will ask a lot more questions about how many properties you already own with mortgages attached to them. We’ll discuss lending requirements and much more as we answer the question: How many homes can I own?
In this guide, we’ll cover:
- You can own as many homes as you can afford
- The number of properties you can own with mortgage financing
- Owning more than 10 financed properties is possible
- Qualifying for a mortgage when you own multiple homes
- The alternative lending option
- Final thoughts and caveats
You can own as many homes as you can afford
If you don’t need traditional mortgage financing, you can own as many homes as you have the means to buy. If you pay cash or work out private financing with the seller or a hard money lender, there are no limits to how many homes you can own, as long as you can afford to make the payments and maintain the properties.
If you want to take advantage of the lower rates and down payments offered by standard loan programs through Fannie Mae, Freddie Mac, FHA or the VA, there may be limits to how many properties you can own, depending on what you intend to use the properties for.
The number of properties you can own with mortgage financing
When determining how many properties with financing you can own, lenders want to know what your occupancy type will be. That is, how will you be using the home? This is answered when you fill out your application and check the occupancy box, where you’ll find options for primary residence, second home or investment property.
We’ll explain how your answer to the occupancy question affects how many homes you can own when you’re applying for mortgage financing.
If you are seeking financing for a home you intend to live in full time, you can own an unlimited number of other homes, financed or otherwise, under conventional, FHA or VA lending guidelines. However, you can typically only have one FHA or VA loan at a time. FHA and VA loans are made to people who intend to live full-time in the home being financed, and lenders will only approve you for a new FHA purchase loan if it is your primary residence. Unless you’re relocating to another city or state to buy a new primary residence and are unable to sell your current home, you aren’t likely to be able to use FHA or VA financing to purchase more than one property.
There is also an exception to the unlimited-own-property allowance for conventional lending if you’re applying for a first-time homebuyer program, such as Fannie HomeReady and Freddie HomePossible. Under these programs, you can only own a total of two properties, including the one you are buying. This restriction is designed to prevent borrowers from rapidly acquiring multiple properties with little to no down payments with the true intention of turning them into rentals.
However you decide to seek financing as a multiple-property owner, you’ll need to provide documentation for all of the expenses related to other properties to make sure you qualify for the mortgage you are applying for.
Second homes and investment properties
Once you begin to buy vacation homes or rental properties, you’ll run into limitations and extra documentation requirements for mortgage financing. In fact, once you own four financed properties, ask the loan officers when you are rate shopping whether their guidelines allow for more than four financed properties — some may not.
Conventional mortgage guidelines suggest lenders can approve a mortgage if you own up to 10 financed properties. That total count includes your primary residence and homes with owner financing or private, hard money loans.
Even if you don’t have a mortgage on your property, include it on your application. Some lenders may have a limit on how many properties you can own regardless of whether they are financed or not. If you leave off a property you own the underwriter may want a detailed explanation and additional documentation as to why you didn’t list it on your application to begin with.
Even if you don’t have a mortgage, the lender still has to qualify you by counting the property taxes, homeowners insurance and homeowners association fees against your income.
Owning more than 10 financed properties is possible
One thing you may notice when you fill out a loan application is that information about commercial property is not often requested. There is a way to own more than 10 financed properties and still obtain conventional financing.
The process involves creating a corporation and financing the properties under the corporation’s name using a blanket loan, which is one loan secured by multiple properties. Local institutional banks offer such blanket loans, and the proceeds are typically used to pay off all the existing mortgages. Even though the properties are still financed, because the properties are in a bundle of more than four financed properties, they are considered commercial property and not counted against the maximum 10-property count.
This is a sophisticated real estate investing strategy, so be sure to consult both a tax professional and a tax attorney for guidance. You’ll also need to prepare corporate tax returns related to the property so the lender can analyze the cash flow when you’re ready to buy your next 10 properties.
Qualifying for a mortgage when you own multiple homes
As you buy more homes, whether you finance them or not, you’re generally going to be asked for more paperwork each time. To make your life easier, you’ll want to have your paperwork organized so your loan officer and mortgage underwriter can easily review your loan for qualification and, ultimately, final approval.
The chart below provides a checklist to keep handy when you’re applying for a new loan and already own more than one property.
|Type of information||Documentation required|
Special qualifying considerations if you own more than one home
Lenders will look at much more documentation to determine your ability to qualify for a mortgage on more than one home. We’ll discuss a few the requirements unique to multiple-home homeownership.
If you’ve owned an investment property for the last year, lenders will scrutinize your tax returns to see if you are making or losing money on rental homes. Even though you may be making money on the property now based on the monthly payment versus the rent you are receiving, if you wrote off a bunch of expenses to fix the home up after you purchased it, the tax returns may reflect a loss.
That loss may become a liability that increases your debt-to-income (DTI) ratio, making it harder to get approved. The good news is depreciation gets added back to your income, and it’s usually highest when you first purchase a property — which may offset the losses incurred by first-year renovation expenses.
If you recently purchased a property that doesn’t appear on your tax returns, even if you have a current lease, the lender will only count 75% of the rental income to qualify. This is called a “vacancy” factor and it is applied to any rental property not listed on your tax returns.
Besides requiring a higher down payment, lenders want to see how many months of payments you can cover on each property, especially when you exceed four financed properties. These extra payments are called payment reserves. You can use the vested portion of your 401(k) or retirement funds toward the reserve requirements, as long as you can prove you could access the funds without having to be terminated from your job or wait until retirement age.
One important thing to remember about buying an investment property: You can’t use gifted funds for down payments, closing costs or reserves.
Lenders want to be able to confirm you can handle the payments related to other properties you own, so in many cases they will constantly update your monthly payments on your credit report to confirm all of your payments are being made on time. Qualifying can get tricky if you have private financing — you’ll need to obtain your payment history to demonstrate that you’re paying the private financing. Private financing is often set up so the payments are made through a neutral title or escrow company; those companies can typically provide your payment history by completing a verification of mortgage form.
If a title company isn’t servicing your payments, you may need to produce at least 12 months of canceled checks or bank statements to verify on-time payments.
You’re not off the hook with documentation if there’s no mortgage on a property. The lender will want proof that the property is free of liens, which they can get from a copy of your homeowners insurance or a special title report that could cost you extra money.
The property documents
As you acquire properties, you should begin assembling a spreadsheet that shows the following, along with the associated documents:
- Address and estimated value of each property: A ballpark estimate from an online home value estimator is fine. Lenders only need to verify the value of the property you are financing.
- Current mortgage balance: The current mortgage statement is the best proof of this.
- Current monthly payments: Same as above.
- Current property tax bill(s): This is especially important for properties with no mortgages, or if you don’t have your property taxes and insurance included as part of your monthly payment (escrowed).
- Current homeowners insurance: This is important for both free-and-clear properties and properties where you don’t escrow homeowners insurance. The evidence of insurance shows if there is a lender associated with the insurance policy; so if there isn’t, that’s usually sufficient proof your home is free of liens.
- Current homeowners association coupon: If you own a condominium or a property with a homeowners association, the most current coupons will be needed, since HOA fees aren’t ever paid as part of your monthly mortgage payment.
- Current leases: Generally, you will only need a current lease if the property was recently purchased and doesn’t appear on your tax returns.
- Closing statements and copy of note and deed of trust (if property was recently purchased and doesn’t appear on returns): This will be required, especially if you recently obtained financing and the loan doesn’t show up on your credit report yet.
The alternative lending option
If you don’t feel like gathering reams of paperwork, alternative lending may offer you an easier option for qualifying, regardless of how many properties you own. Unlike regular mortgage programs, these lenders only look at the rent you’ll be earning compared to the payment on the property you are financing. If it’s at a 1:1 ratio or better, you meet the basic income and DTI approval requirements for a debt-service-ratio loan. For example, if your new mortgage payment is $1,000 and the market rent is $1,000, you would be eligible for financing.
Alternative lending options are usually offered through mortgage banking companies or mortgage brokers. They may be referred to as “no-income, no-asset” or NINA loans because they don’t calculate a DTI like a regular loan and don’t require proof of funds for a down payment.
Final thoughts and caveats
Owning more than one home can provide a number of different benefits, but there are also significant risks. Unlike stocks and bonds, real estate is not considered a liquid asset, meaning you can’t just sell it quickly if the value drops.
The more properties you own, the more responsibilities you have for maintaining the properties. In addition to consulting with a good financial planner, consider retaining a good real estate attorney and an accounting professional who knows the ins and outs of owning multiple properties.