Multiple mortgages can mean multiple headaches if not managed properly. Despite the potential complications, if you have a need for more than one mortgage loan, it is doable. Whether you have multiple loans on one property or several properties with a mortgage on each, you simply need the means and the discipline to keep them current.
Multiple Mortgages, Same Property
The most important aspect to consider when carrying multiple mortgages on a single property is equity. Equity is the difference between the value in the property and the aggregate balance of your mortgages. Certain mortgages, such as FHA loans, let you go to 97 percent loan-to-value (LTV) on a single mortgage. However, to have a junior mortgage on a property, the majority of banks will only allow up to 80 percent LTV. This means that your first mortgage must be even less than that. For example, if you have a $250,000 mortgage on a $500,000 property, your LTV is 50 percent. 80 percent of $500,000 is $400,000. Deducting the $250,000 first mortgage gives you $150,000 in equity. Any additional mortgages will have to be equal to or less than $150,000.
Multiple Mortgages, Multiple Properties
When you have multiple mortgages on multiple properties, it is important not only to have enough equity in each property, but also to have enough income to support the payments on each. While income is an important factor in all mortgages, multiple properties carry multiple expenses. Not only do you have to keep current on your payments, but you also have taxes and insurance on each property. Most banks want to see that your debt-to-income ratio is no more than 40 percent. This means that all of your debt, including the payments on multiple mortgages, must account for no more than 40 percent of your income.
One Lender vs. Multiple Lenders
Another important consideration if you have multiple mortgages is whether to keep them all with one lender or to spread them out. The advantage of staying exclusively with one lender is that you can build a relationship, which in turn may make the lending process easier. On the other hand, staying with one lender can cause you to miss the opportunity to seize lower rates and specials with others. Ultimately, you should weigh your options and determine what makes the most sense for you from a cost standpoint.
Managing Multiple Mortgages
Once you have multiple mortgages, you must manage them properly. Keep track of your outstanding principal balances and payment due dates. Determine if you are more comfortable making your payments at the same time or spreading them out across the month. If you have multiple mortgages with one lender, ask if you can modify your payment dates to suit your needs. Whatever you do, make sure you make payments on time; otherwise you may find it difficult to get future mortgage loans.
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