Can you use your mortgage pre-approval to buy multiple properties? The home I want to buy is much less than the loan amount I was pre-approved for so I also want to buy a rental property.

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated October 20, 2020

Mortgage pre-approval applies to a single property and you cannot divide the loan amount you are approved for to buy multiple properties.

For example, if you are pre-approved for a $300,000 mortgage you cannot use a $150,000 loan to buy one property and another $150,000 loan to buy a second property. If you want to buy more than one home, you can apply for multiple pre-approvals but each approval only applies to a single property.

When you apply to be pre-approved for a mortgage, the lender assumes you are only buying one property, which means you are paying property tax and homeowners insurance for a single home. If buying multiple properties increases your total housing expenses, you may qualify for a smaller mortgage amount.  Buying multiple homes at the same time may also increase your closing costs and impact the loan you can afford.

Review How to Get Pre-Approved for a Mortgage

Additionally, when you are pre-approved, the lender uses a specific mortgage rate to determine the loan you can afford. The rate for a mortgage on a second home is higher than the rate for a loan on your primary residence and investment property mortgage rates are even higher.

The different interest rates means that the loan amount you are pre-approved for on a home you live in is higher than the rental property mortgage you qualify for. If you attempt to buy different types of properties, the mortgage amount you are approved for changes.

Other qualification requirements including the required down payment, minimum credit score, maximum debt-to-income ratio and borrower reserves may also vary depending on the type of property you buy. Plus, investment properties involve rental income so the qualification analysis is different than for your primary home. These are other reasons why mortgage pre-approval only applies to one property and why you cannot mix and match properties.

If you want to buy multiple properties including different types of properties, you can either get multiple pre-approvals or purchase one property and then wait to buy other properties in the future.

If you apply for multiple pre-approvals be sure to communicate as much information as possible to the lender, especially if one property is your primary residence and the other is a rental property. This enables the lender to provide the most accurate assessment of the mortgage you can afford for each property. This also allows the lender to factor in the total housing costs for both properties.

Use our Mortgage Pre-Approval form to get pre-approved for your loan. Getting pre-approved enables you to determine the mortgage you qualify for and move with greater certainty when you shop for a home. Our Pre-Approval form is no obligation, requires minimal personal information and does not impact your credit.

Applying for more than one mortgage pre-approval can be complicated and time-consuming so a better approach may be to buy multiple properties sequentially. In this scenario, we recommend that you buy your primary residence first and then get pre-approved to buy a second property in three-to-six months.

In general, it is easier to buy one home at a time so you are not juggling multiple property sellers and closings at the same time. The downside to waiting is that your financial position, employment status or credit score may change after you buy the first property and there is no guarantee you will be approved for a mortgage in the future. Additionally, if mortgage rates increase, you may not qualify for the loan you need to buy the property you want.

In closing, the approach that works best for you depends on your personal circumstances and how comfortable you are waiting to buy additional properties. If you do not want to wait, then contact a lender about buying multiple properties today. If your timing is more flexible, then buying one home at a time usually makes the process more manageable.

The table below shows mortgage terms for leading lenders in your area. We recommend that you contact multiple lenders to find the loan that is right for you. Shopping lenders is also the best way to save money on your mortgage.

Sources

"Getting Pre-approved."  My Home by Freddie Mac.  Freddie Mac, 2019.  Web.