How Do I Mortgage Multiple Properties?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

Although it's possible to invest in more than one property at a time, it's difficult to do so without an ample income or signed lease contracts. During the mid-2000s, most mortgage lenders relaxed their lending standards and issued inexpensive mortgages to low-income workers. As the economy soured, many of these low-income folks became unable to afford their loans. Once they stopped making payments on these loans, their lenders had no choice but to foreclose on their homes. This spawned the infamous "housing bust" and the recession that followed.

These days, mortgage lenders are far more cautious about the means by which they structure their mortgage loans. They're also far more cautious about the folks to whom they lend. In certain areas, it's now common for lenders to ask for as much as 30 percent of the total value of a home before issuing a mortgage on it. Since many first-time home buyers can't afford to shoulder this expense, the housing market has remained weak.

If you're lucky enough to be able to afford to purchase multiple homes, you'll need to work to convince your lender that you can shoulder such a burden. Fortunately, there are no strict limits on the number of homes that an individual may purchase. If you can adhere to the informal debt-to-income ratios that most lenders set for their customers, you'll be able to purchase multiple homes with little trouble.

Your debt-to-income ratio increases with each new loan that you acquire. Eventually, this ratio will reach unsustainable levels. In order to prevent it from doing so, you'll need to increase your income after taking on new loans.

This is easier than it sounds. If you insist upon "living" in the homes that you purchase, you'll be unable to acquire more than two or three homes. On the other hand, you'll be able to afford five or more homes by designating your non-primary residences as rental properties. Once you've found stable tenants for each of your properties, you'll be cleared to purchase additional houses or buildings. Most banks define "stable tenants" as individuals who sign leases with fixed terms of one year or longer.

If you've accumulated a number of rental properties, you may be able to use "blanket mortgages" to increase your buying power. Typically issued to large-scale landlords or established property-management companies, blanket mortgages permit their holders to purchase multiple homes in the same transaction. If you qualify for a blanket mortgage, you may not need to find tenants before finalizing your purchase.

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