Hello. I am beginning to purchase single family homes as an investment. I am going to do so through the traditional means of going through a lender and getting loans and finding renters for the homes. My question is this:
"Is there a limit as to how many homes I will eventually be able to hold due to my income from my job only supporting a certain amount or does the lender look at my loans and see that a renter is covering my expenses and continue to lend me money on additional houses because of that?
I am hoping to buy a large amount of homes…I have heard of people doing that but I am not sure if this is the way they have achieved it. Thanks for the help and good investing.
Conventional loans are going to be capped at 10. There used to be many lenders that would go above that number but they are mostly gone now.
Chris is right for the most part.
I wouldn’t worry about it until you get to that point. Once you get there, hopefully you will have established a good relationship with a local bank in your area (not the big boys, the small local banks or credit unions). They many times portfolio their own loans, so they might not be as concerned with the rules of Fannie Mae and Freddie Mac.
Even though FNMA caps investors to 10 properties owned/mortgaged, the next tier for those exceeding this limit would be a portfolio lender (I’m aware of two that don’t care how many you own).
Another alternative would be to use a commercial blanket loan once you exceed 10 and this would allow you to meet the FNMA guidelines again.
Wow! Thanks for the information. I am still wondering if my personal income will be the thing that caps me? Let’s say that I personally qualify for 600k. That means I can get about three 200k houses. Will the lender say that I am done at that point or because they have solid renters in them that I can keep going?
The lenders will typically take 70-75% of the rent and count that as income toward the payment.
There are still a few wholesale lenders that allow you to have more than 10 mortgaged properties. If you are looking to purchase your 11th property and so on, you can expect to put down at least 20 to 30% down with rates in the 7’s. You will also have to have some strong verified assets. The more the better. Some lenders may require 3 months reserves per rental property in extreme cases. Good luck.
Your income caps you, not just your personal income but your total income. The lender will look at how much “discretionary” income is available to pay the loan each month.
If 75% of your rental income pays 100% of the expenses for your rental property, then your rental property is cash flow neutral – there is no income from the property but no liability to reduce your discretionary income either. If you subtract 100% of your recurring rental property expenses from 75% of your rental income and still have a positive number, then that property generates income which will help reduce your debt to income ratio.
As long as your investment property is generating income under the 75% rule, then you should still be qualified for $600K in financing as long as your other discretionary income has not decreased.
Even though you might financially qualify for a mortgage loan, there is a 10 financed property limit for conforming loans. Fannie Mae and Freddie Mac will not purchase a loan if the borrower already has 10 financed properties. If a lender sells all their loans to Fannie or Freddie, then they won’t give you the 11th loan because they can’t sell it, regardless of the strength of your financial statement.
When this happens, you have to resort to portfolio lenders, blanket mortgages, or pay off some of your low LTV loans to get below the 10 financed property threshhold.
The rules change if you are talking about your primary residence, however. Your primary residence is always eligible for a conforming loan without regard to how many investment properties you may have financed.