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Blanket Mortgage Definition: What It Is and How to Use One

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What is a blanket mortgage? A blanket mortgage finances two or more real estate properties under one loan. Investors and developers use them to save time and money when financing multiple assets. Blanket mortgages are not meant for primary residences, vacation homes or brand-new landlords just starting out.

What does a blanket mortgage cover?

A blanket mortgage covers multiple pieces of real estate, such as developed or undeveloped land and commercial or residential property. The assets — the land and/or buildings — serve as collateral to secure the loan.

  • Real estate investors could buy properties in multiple locations and use a blanket loan to make one unit in their portfolio.
  • House flippers could purchase several homes to work on in one sweep.
  • Developers could finance a large lot of land they plan to divide and sell as smaller, separate lots.
  • Businesses could buy multiple sites.

The borrower in a blanket mortgage can sell some of the assets at any time, and remove them as a liability from the loan, without needing to refinance or obtain a new loan. At the same time, the borrower has the option of refinancing or retiring the whole loan when they’re ready.

What is an example of a blanket mortgage?

A developer purchases 100 acres of land to build a residential suburb with one house per acre. They use a blanket loan to purchase the land from multiple sellers. As they build, they begin selling the homes to individual families. With each sold house, they pay off a portion of the loan.

What is a blanket mortgage balloon loan?

Some lenders may offer a balloon structure on blanket mortgages. Balloon loans have smaller payments at the start of the loan, allowing the borrower to retain cash assets. This may be especially useful for house flippers and developers who need to purchase not only the land, but also all the building materials, equipment and labor. The last payment in a balloon loan is for the remaining loan amount.

What are the pros and cons of blanket mortgages?

There are several pros and cons of blanket loans to consider — factors of convenience and money are on both sides.

  • Time: It can take less time to review and sign the paperwork for one loan compared to several. 
  • Access to equity: A blanket loan gives you access to the combined equity of all the properties.
  • Consolidated finances: Effectively having one financing vehicle and making one loan payment is easier than juggling multiple loans. 
  • Down payment: Blanket mortgages can require a 25% to 50% down payment. Comparatively, single-family investment loans require 15% to 20% down. 
  • Risk of foreclosure: Defaulting on the loan can mean that all properties are at risk of foreclosure.
  • Geographic limits: Lenders may expect all the properties in one blanket loan to be in the same state or region.

What do blanket mortgage fees look like?

It may be less expensive to cover the fees on a blanket mortgage for certain closing costs — such as loan origination fees — compared to covering the costs on multiple loans. However, each property will still need to be appraised and the mortgage interest rate may start at 4% to 9%, depending on the lender’s assessment of the risk involved.

Is it hard to get a blanket mortgage?

Experienced professionals may not have a problem getting a blanket mortgage. Large, commercial lenders are more likely to approve real estate companies and seasoned investors who buy properties in bulk. To be approved, you typically must already have a real estate portfolio and sizable assets, including a good portion of cash on hand.

Local credit unions and small banks aren’t likely to offer blanket mortgages.

Where can I find blanket mortgage lenders?

Commercial lenders offer blanket mortgages through their brokers and bankers. If you already have a relationship with such a lender or an institutional bank, ask your point of contact for information. Otherwise, do an online search to find potential lending partners. Be sure to compare rates, fees, prepayment penalties and requirements to find the best option for you.

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