- Conventional lenders often cap investors at 4 to 10 financed properties, stalling portfolio growth in Texas.
- Portfolio loans bundle multiple properties under one loan, bypassing conventional limits for easier management.
- This financing focuses on the properties' collective cash flow rather than just your personal income for qualification.
Why Conventional Lenders Limit You to 4 (or 10) Properties
If you've started building a real estate portfolio in Texas, you've likely encountered a frustrating roadblock. After successfully financing a few properties, you apply for your fifth or eleventh loan only to be turned down, even with excellent credit and income. This isn't a reflection of your success; it's a reflection of the lender's risk management rules.
Most conventional loans are underwritten to be sold to government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. These agencies set the rules for the loans they are willing to buy. Officially, Fannie Mae allows an individual investor to have up to 10 financed properties. However, many individual lenders add their own, stricter rules called lender overlays. To minimize their perceived risk, they often cap the number of financed properties at four.
Once you exceed that number, you're no longer eligible for a standard conventional loan from that lender. They view an investor with many properties as having a higher-risk profile. The solution isn't to stop investing; it's to switch to a different type of financing designed specifically for portfolio growth.
What Is a Portfolio Loan and How Does It Solve This Problem?
A portfolio loan is a single mortgage that covers multiple properties. Instead of juggling separate loans for each of your rental homes in Dallas, Houston, or Austin, you consolidate them under one umbrella loan with one monthly payment. This is the key that unlocks further growth for serious investors.
The magic behind a portfolio loan is who holds it. Unlike conventional loans that are sold to Fannie Mae or Freddie Mac, a portfolio loan is kept on the lender's own books, or 'in their portfolio'. Because the lender is not selling the loan, they are not bound by restrictive agency guidelines. This means:
This type of loan shifts the lender's focus from your personal debt-to-income ratio to the financial performance of your investment portfolio.
How Lenders Underwrite a Portfolio of Texas Properties
Underwriting for a portfolio loan is fundamentally different from a conventional mortgage. The lender is primarily concerned with the portfolio's ability to pay for itself. The most important metric they use is the Debt Service Coverage Ratio (DSCR).
Understanding DSCR
DSCR measures the cash flow available to pay the property's debt obligations. The formula is simple:
DSCR = Gross Rental Income / Total Housing Payment (Principal, Interest, Taxes, Insurance, and any HOA fees)
Most lenders require a DSCR of at least 1.20 to 1.25. This means your properties must generate 20-25% more in rental income than the total cost of the mortgage payment. A higher DSCR indicates lower risk for the lender.
Let's say you have five rental properties across Texas.
In this scenario, your 1.27 DSCR would likely meet the lender's requirements. Other factors they consider include your experience as a landlord, your credit score, and your liquidity (cash reserves).
Can I Cash-Out Refinance My Existing Rentals Into One Portfolio Loan?
Yes, this is one of the most powerful applications of a portfolio loan. A cash-out refinance allows you to consolidate your existing mortgages and simultaneously tap into the equity you've built across all your properties. This strategy is ideal for investors who want to free up capital to purchase more properties.
The process works by taking out a new, larger loan that pays off all existing individual mortgages, with the remaining funds disbursed to you as cash. Lenders typically allow you to borrow up to 70-75% of the combined appraised value of the properties (Loan-to-Value or LTV).
Example:
That $475,000 in tax-free cash can then be used as down payments to significantly expand your rental portfolio.
What Are the Typical Interest Rates and Terms for These Loans?
Because portfolio loans are non-conforming and held by the lender, they carry a slightly higher risk. As a result, the interest rates are typically higher than for a conventional loan on a primary residence. You can generally expect rates to be 1% to 3% higher than the prevailing Fannie Mae rates.
Loan terms are also different. While a 30-year fixed-rate option may be available, many portfolio loans are structured as hybrid adjustable-rate mortgages (ARMs). Common structures include:
It's also important to be aware of prepayment penalties. Many portfolio loans include a clause that charges a fee if you pay off the loan within the first few years (typically 3-5 years). This protects the lender's interest on their investment.
Do I Need a Certain Number of Properties to Qualify?
There isn't a magic number that applies to all lenders, but you do need a 'portfolio' to get a portfolio loan. Most lenders that offer this product require a minimum of 2 to 5 properties to be included in the loan. The goal for the lender is to create a loan that is large enough to be efficient to service.
Some lenders specialize in smaller portfolios of 2-10 properties, while others focus on institutional-level investors with 20, 50, or even hundreds of units. The key is finding a lender whose program matches the current size of your portfolio and your future growth ambitions.
How Does This Strategy Compare to Using Multiple DSCR Loans?
A portfolio loan is not the only way to finance multiple properties. Another popular option is to use individual DSCR loans for each property. A DSCR loan is a standalone mortgage underwritten based on that single property's cash flow. Here’s how they compare:
Portfolio Loan
Multiple Individual DSCR Loans
The Verdict: Portfolio loans are best for buy-and-hold investors focused on scaling efficiently and simplifying operations. Individual DSCR loans are better for investors who prefer flexibility and may sell properties more frequently.
What Are the Documentation Requirements for This Type of Financing?
While portfolio loans are less focused on personal income, the documentation requirements are still thorough. Lenders need to verify the performance of the properties and your experience as an investor. Be prepared to provide:
Navigating portfolio loans in Texas requires a lender who understands investor goals. If you're ready to break past the 4-property limit, let's discuss a strategy that aligns with your growth plans.
Ready to grow your real estate portfolio beyond conventional limits? Let's explore the strategy that fits your ambitions. Apply now to unlock your investment potential.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including real estate investors looking to expand their portfolios. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates. Praised for exceptional customer service and Saturday closings, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve with bare-bones closing costs and no junk fees.
References
Fannie Mae: Multiple Financed Properties Eligibility
CFPB: What's the difference between a second home and an investment property?
