How Many Conventional Loans Can I Have? What To Do When You Hit the Limit

At some point, every residential investor needs to ask, “How many conventional loans can I have?”

You can have up to ten conventional loans. However, you’ll face higher qualification requirements long before reaching that number.

In this article, we'll review the guidelines regarding multiple conventional loans, some exceptions to the ten-property rule, and alternative options once you hit your conventional loan limit.

Higher Requirements for Multiple Conventional Loans

Eligibility requirements change as you take on more conventional loans. Sometimes, you'll need extra reserve funds when obtaining over four mortgages. And when you hit number seven, you’ll need a credit score of at least 720. Plus, reserve requirements are even higher for loans seven through ten.

Reserve Requirements

Conventional lending guidelines require additional reserves from borrowers with multiple financed properties. The amount needed will be based on the policies the lender follows. Here are the rules from both Fannie Mae and Freddie Mac:

Fannie Mae – First, you need to meet the standard reserve requirement for the subject property. You will also be required to have additional reserves based on the number of other financed properties you own.

The required amount is calculated as a percentage of how much you still owe on your other existing mortgages and HELOCs. This total debt obligation is known as the unpaid principal balance (UPB).

Here’s how much you’ll need based on the number of financed properties you own:

When calculating your UPB, you don’t have to include:

• the property being purchased or refinanced (standard reserve requirements apply)

• your principal residence

• properties that you’ve sold, are pending sale, or will be paid off by closing.

For example, you have five financed properties, each with a loan amount of $200,000. You would need $8,000 reserves for each property, or a total of $40,000 in reserve after closing the new loan.

Freddie Mac – Lending guidelines are more straightforward with Freddie Mac. As always, you must meet the subject property's standard reserve requirement.

After that, you will need:

• Two months of principal, interest, taxes, insurance, and association dues (PITIA) for every other property for up to six total loans.

• Eight months of mortgage payments for each other property for seven to ten conventional loans

As an example, someone with 10 properties, each with a PITIA payment of $1,500, would need:

• 8 months PITIA payments ($12,000) X 10 properties = $120,000 in reserves.

As with Fannie Mae, your principal residence is excluded from reserve calculations.

Exceptions to the 10-Property Rule

While lending standards only allow borrowers to have 10 financed properties, exceptions exist. You can get a conventional purchase or refinance loan in certain situations, even if you've already reached your mortgage limit.

Principal Residence

The 10-property rule does not apply to your principal residence. You can purchase or refinance your primary home, even if you already have ten conventional loans. A financed primary residence does, however, count towards your total when buying a second home or investment property.

Property Owned by a Business or Trust

Mortgaged properties owned by your business or a trust that you're a trustee of don't count towards your limit as long as you're not individually obligated on the debt. However, if you provided a personal guarantee to secure the loan, it will be added to your total count.

High-LTV Refinances

In recent years, borrowers with a good repayment record but very little equity in their property could get a high-LTV refinance loan. These were generally used to reduce monthly payments when home prices stagnated or decreased. You could do a high-LTV refinance without being subject to the loan limit or enhanced qualifying requirements.

Fannie Mae and Freddie Mac stopped accepting high-LTV refi loans in mid-2021 as rapidly rising home values essentially eliminated the need for these mortgage relief products. But if conventional lenders begin offering high-LTV refinances again, they will likely be exempt from the 10 mortgage limit.

Other Exemptions

There are a few types of real estate loans that won’t count against your conventional mortgage limit or impact your required reserves:

• Commercial real estate mortgages, including multifamily properties with five or more units

• Vacant lots (residential or commercial)

• Timeshares

• Certain mobile home loans

Where To Find Additional Financing

If you’ve reached your limit of ten conventional loans or are otherwise having trouble qualifying because of your existing mortgages, there are plenty of additional financing options to consider.

Non-QM Lenders

Conventional and government loans are considered “qualified mortgages” (QM loans). Lenders who offer loan products outside qualified mortgage guidelines are called non-QM lenders.

Non-QM lenders usually don't have a hard limit on financed properties. But you can expect higher interest rates and a larger down payment. Plus, your purchase will often be assessed more on its own merit than your profile. Lenders are likely to hold you to minimum credit score and reserve requirements. But they will probably be more concerned with your property’s loan-to-value and cash flow.

HELOCs

Cashing out the equity you’ve already accumulated on other properties can be an effective way to finance future investments. By taking out a home equity line of credit (HELOC), you can access the capital you need without putting the property you want to purchase through lender approval.

The downside of using a HELOC is that the property with the line of credit is at a greater risk of default if you run into issues with your investment. This risk should be an extra-serious concern if you plan to take out a HELOC on your primary residence.

Business Loans

If you have an established business – which is likely if you’re looking for alternatives to the ten conventional loan limit – then a business term loan may be a practical option. Business loans typically come with repayment terms ranging from twelve months to ten years. Term loans can be used for any business purchase or investment. They can be a powerful tool for established investors, especially flippers who don't anticipate a long holding period for their purchase.

Established businesses can also qualify for loans from the Small Business Administration (SBA). Both SBA 7(a) and SBA 504 loans can be used to purchase real property. While SBA loans can’t be used for rental or speculative investments, they are still a valuable option when purchasing property for your business. You can even buy an income-generating multi-unit building if your company plans to occupy at least 51% of it.

Blanket Mortgages

Blanket mortgages are specialized lending products that allow you to purchase multiple properties under one loan.

With a blanket mortgage, you don’t have to sell the properties all at the same time. Unlike conventional loans with a due-on-sale clause, blanket mortgages allow you to sell individual investment properties and release them from your mortgage obligation.

While closing costs on a blanket mortgage are higher than on a single-property loan, investors can realize considerable savings compared to funding numerous purchase loans individually. The downside with blanket mortgages is that financial issues can put your entire portfolio at risk of foreclosure rather than just a single property.

Local Banks and Credit Unions

These smaller lending institutions can often finance additional properties based on your track record as an investor and history of doing business with them.

Like non-QM lenders, local banks and credit unions are likelier to act as “portfolio lenders,” meaning they hold onto mortgages rather than sell them on the secondary market. This gives them extra flexibility when assessing your loan application and funding needs.

Choosing the Right Type of Additional Financing

To new investors, ten conventional loans may sound like a lot. But it's easy for anyone serious about growing their portfolio to max out at the ten-property limit. Thankfully, investors have various alternative lending options once they reach that point.

If you're near or at your ten conventional loan limit, your best strategy is to contact a lending expert knowledgeable on alternative types of investment loans. These mortgage professionals can take your property investment goals and point you towards the loan products best fitted to your financing needs.