• Six months of “liquid reserves” (cash, or assets that can be easily converted to cash).

Although a program introduced by Fannie Mae in 2009 does allow 5-10 mortgages to be on a borrower’s credit, finding a bank that will give you a mortgage can be difficult, despite the guarantee from Fannie Mae.

The program requires six months’ payments held as a liquid reserve at the time of settlement. It requires at least 25% down for single-family homes and 30% down for 2-4 unit properties. If you have six or more mortgages, you must have a credit score of 720 or more. No exceptions.

FHA Mortgages

But there’s a catch. To qualify for the generous rates and terms of an FHA mortgage, you must buy a property of 2-4 units and occupy a unit in the building. Then the property qualifies as “owner occupied.”

FHA mortgages are not directly issued by a government agency. Instead, the loans are made by private lenders, and the FHA insures those lenders against losses. This gives banks more incentive to lend to borrowers who might otherwise be seen as too risky.

Thanks to government backing, FHA mortgage lenders are lenient with regard to minimum credit scores, down payment sizes, and the borrower’s previous real estate experience.

The down payment requirement for FHA mortgages is just 3.5% for buildings with one to four units. (But remember you have to buy a 2-4 unit property to use FHA for investment properties). By contrast, a conventional loan might require 20% down on a two-unit purchase and 25% down on the purchase of a 3-unit or 4- unit home.

Because the FHA allows cash gifts for down payments and the use of down payment grants from a municipality, it’s even possible to get an FHA-financed home with no money of your own.

Just as important, the agency states that it will insure loans to borrowers with credit scores as low as 500. This is more than 100 points below the minimums for conventional and VA mortgages.

The FHA also makes allowances for home buyers who have experienced a recent foreclosure, short sale, or bankruptcy because of “extenuating circumstances,” such as illness or loss of employment.

FHA mortgage lenders would like applicants to have a minimum credit score of 580, but most lenders will require a much higher score to qualify for a 2-4 unit property in which you are renting out one or more of the additional units.

VA Mortgages

According to a 2016 study by the National Association of Realtors, 16% of active duty military personnel own investment properties compared with 9% of the general public.

1. 1. Because active duty personnel are frequently forced to move, they are often unable to sell their current homes at a price that would let them recoup their investment. So instead of selling the houses, they become absentee landlords.
   2. VA mortgages allow veterans, active duty service members and their surviving spouses to obtain investment property loans with no money down and low mortgages rates. As with FHA loans, the only requirement is that the borrower live in one of the building’s units (in this case, for at least one year). After that, they can rent out the entire building and live somewhere else.

Rental properties can have as many as four units, or can be a duplex or triplex. The property can even be a home in which a room is rented or a home with a separate apartment on the property.