4 Ways To Finance Multiple Mortgages
As a real estate investor, you can try several ways outside of conventional loans to finance multiple mortgages. Next, let’s take a look at hard-money loans, blanket loans, portfolio loans and cash-out refinancing loans.
1. Hard-Money Loans
Hard-money loans don’t come from traditional lenders. Instead, they come from private funding from individuals and companies. Lenders often look for properties that won’t stay on the market for long and that have good selling potential.
A hard-money loan is also a secured loan. This means the lender accepts property as collateral. In other words, if a borrower defaults on a hard-money loan, the lender takes possession of the property.
Obtaining A Hard-Money Loan
Hard-money loans don’t require as strict of an approval process. As a borrower, you might turn to this option if you can’t get approved for a conventional loan. You can also close on a hard-money loan in just days, as opposed to the month or so it may take to get a conventional mortgage.
Hard-money loans often come with a high interest rate of 8% – 15%, compared to the lower rate you can get with a conventional loan.
Hard-money loans may also require a large down payment because lenders may only want to finance 70% – 80% or less of the property value. Therefore, you may need considerable cash on hand for a hard-money lender to take you seriously.
Nevertheless, hard-money loans can offer real estate investors and house flippers the quickest way to buy multiple properties.
2. Blanket Loans
Blanket mortgages allow you to finance multiple properties under the same mortgage agreement. These mortgages work well for real estate investors, developers and commercial property owners. Blanket mortgages allow for an efficient and often less expensive buying process.
Another benefit of a blanket mortgage is that as soon as one property under the agreement gets refinanced or sold, a clause “releases” that property from the original mortgage. The other properties under the original mortgage stay on the mortgage. In other words, you don’t have to pay off the full loan.
Obtaining A Blanket Loan
Buying properties under a blanket mortgage means that all properties get the same financing terms. Like with hard-money loans, the lender offers collateral for properties in exchange for a blanket mortgage. Defaulting on the loan could mean risking your existing properties.
Take note that you may face strict requirements when seeking a blanket mortgage. Also, because of the different rules that exist from state to state, you can’t use a blanket mortgage to purchase properties in multiple states. Finally, you’ll pay much higher closing costs on a blanket mortgage than a conventional mortgage.
3. Portfolio Loans
A lender originates and “keeps” a portfolio loan instead of selling it on the secondary mortgage market. In other words, a portfolio loan stays in the lender’s portfolio. Lenders set the specific underwritten standards for borrowers.
Very similar to a hard-money loan in wait time, a portfolio loan significantly reduces the amount of time you’ll spend waiting to get financing for your properties.
Obtaining A Portfolio Loan
A portfolio loan can end up being more expensive than an equivalent conforming loan due to higher interest on mortgage rates or a prepayment penalty charge if you pay off your loan early. These higher costs stem at least partly from your lender not being able to sell the loan and assuming the entire risk of the portfolio loan.
Portfolio loan borrowers must also offer a high down payment as well as proof of ample assets and high income.
4. Cash-Out Refinancing
You may want to consider a cash-out refinance, a type of mortgage refinance that taps into the equity you build up with your other properties over time. You get a lump sum in cash in exchange for taking on a larger mortgage when you borrow more with a new property.
With a cash-out refinance, you pay off an old mortgage and replace it with the new one. Let’s say you still owe $100,000 on a $200,000 property – you’ve paid off $100,000 of the principal balance. You can take a portion of that $100,000 in home equity and put it toward a new mortgage.
Obtaining A Cash-Out Refinance
In the case of a cash-out refinance, your current mortgage is rewritten to be worth more, but how much more depends on how much cash you need to take out to invest in other rental properties. A few days after you close on your cash-out refinance, your lender will give you the cash you require to buy the new property.
