The advantages and disadvantages of taking out several mortgages
Intro
Yes—you can take out multiple mortgages. What you can get depends on your needs as well as your ability to repay them all. Usually, taking out multiple mortgages is a good option for those looking to expand their personal vacation home count beyond a primary residence or their real estate investment portfolio. In other words, it is a great way to make more money and increase your assets. Here is a guide for who should take out multiple mortgages, when, and why.
Managing multiple mortgages
The best way to manage multiple mortgages is to create a solid system to deal with them appropriately. A system will help you keep track of the multiple payments you will have to make. For this reason, it might be best practice to avoid relying on your lender to keep you posted on what you owe and where, particularly where non-traditional lending options are involved. It is also a good idea to be thoroughly aware of the principal balance for your properties, the payoff timelines, and the payment dates.
Further organization might also be required if you do not have the same lender for each of your properties, as you might not have the same mortgage payment dates for each lender. If that’s the case, you might want to consider staggering your payment dates or have each of them due on the same day. The main takeaway from managing multiple mortgages is that it’s important to know where your money is going—and when.
Affordability: Can you afford multiple mortgages?
For most people, the major hurdle to getting multiple mortgages is simple: can they afford the repayments on each of the mortgages? As an example, the major criteria for affordability for buy-to-let mortgages is the potential rental income.
With residential mortgages, on the other hand, lenders usually want to construct a much more detailed picture of your financial stability, which involves your outgoings and your household income. The range of outgoings is as broad as your existing mortgage repayments and your Disney+ account. Your credit rating will be thoroughly reviewed to give your lender proof of your ability to repay any money you borrow, which is the case for any mortgage.
Different requirements for availing of multiple mortgages
There are different requirements for availing of multiple mortgages, and your lender will likely ask you to fulfill certain requirements when you want to qualify for financing on your first four mortgages, such as:
Requirements for 1-4 mortgages.
- A loan-to-value, or LTV, ratio upwards of 80%
- A credit score of approximately 670-739, which would rate as good to excellent
- Proof of income from tax returns or W-2s
- Cashflow availability from your rental properties
- Proof of existing conventional mortgages
- Statement of liabilities and assets
- Financial statements on any existing investment properties
Requirements for availing of five to 10 mortgages, on the other hand, tend to differ, with lenders imposing more strict qualifications. Typically, when you want more than four mortgages, underwriting guidelines tighten dramatically. Some requirements for availing of five to 10 mortgages include:
- 30% down on quads, triplexes, and duplexes
- No late mortgage payments on any property
- 25% down payment on each investment property
- Minimum credit score of 720
- Six months worth of money reserves for principal, interest, taxes, and insurance coverage on all properties
- Two years of tax returns showing all rental income from all properties.
Other ways to finance multiple mortgages
Aside from tapping into conventional loans, there are other ways that you can finance multiple mortgages, including the following:
Hard money loans. These do not come from traditional lenders but from private funding from companies and individuals. Usually, lenders look for properties that have a good selling potential and don’t stay in the market that long. Compared to the low rates that you usually find with conventional loans, hard money loans usually come with higher interest rates, between 8-15%. Since hard money loans require larger down payments, you might need considerable cash handy.
Blanket loans. With blanket loans, you can finance multiple properties with the same mortgage agreement. Blanket loans usually work best for commercial property owners, real estate investors, and developers. These types of loans allow for a less expensive and more efficient buying process. Another important feature is that when one property under the agreement gets sold or refinanced, there is a clause that releases the home from the original mortgage.
Portfolio loans. Rather than selling them on the secondary mortgage market, lenders originate and keep portfolio loans, meaning they stay in the lender’s portfolio. That also means a lender sets the underwriting standards for borrowers. Because lenders cannot sell the loan—and therefore take on the whole risk of the portfolio loan—these types of loans can end up becoming more costly than an equivalent conforming loan.
Cash-out refinancing. With cash-out refinancing, borrowers tap into the equity they have built up with their other properties and receive a lump sum in exchange for taking out a bigger mortgage after they borrow more money with a new property. Essentially, they pay off an older mortgage and replace it with the new one when they get a cash-out refinance.
