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Multiple Loan Mishap

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Posted On: 09/04/2013

Question:

Why does having six mortgages make it difficult to refinance an existing rental property loan? I have found a lender to do it, but the requirements are more stringent. I do not understand the logic of a tougher standard, because my costs will go down with refinancing. Property value, equity, income level, etc., are not a problem. If I had fewer than four loans, the refi would have been quickly completed.

Answer:

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You can have as many loans as you like as long as you can find lenders willing to advance the money.

The problem is that those very same lenders may want to sell their loans in the secondary market so they can get new cash from investors to make new loans. In the secondary market, there are buyers who limit the number of mortgages they will take from one borrower.

Consider Fannie Mae. It says if the loans are "secured by the borrower’s principal residence, there are no limitations on the number of properties that the borrower can currently be financing."

It also says, "If the mortgage is secured by a second home or an investment property, the borrower may own or be obligated on up to ten financed properties (including his or her principal residence)."

However, not all loans are counted equally. Standard eligibility and underwriting apply with one-to-four financed properties, but tougher rules apply when five or more properties are being financed.

By any chance, do you have an ownership interest in a property where another owner has several other mortgaged properties? If yes, you could be above the Fannie Mae limit. For instance, imagine if you have six mortgaged investments and a co-owner has four. Getting an additional loan may be difficult.

What are your options? Consider consolidating mortgages, paying off smaller loans, finding a lender who sells to a variety of secondary buyers or locating a portfolio lender who might have different rules. Speak with lenders for specifics.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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