What Is a Blanket Mortgage and How Does It Work?
A blanket mortgage is a home loan that allows you to finance two or more real estate properties with a single loan. Investors and developers use blanket loans to save time and hassle when buying multiple properties at once. Blanket mortgages are not meant for primary residences, vacation homes or beginner real estate investors.
What does a blanket mortgage cover?
A blanket mortgage covers multiple pieces of real estate, including developed or undeveloped land and commercial or residential property. The assets, which can be land, buildings or a combination of both, serve as collateral to secure the loan. Some lenders offer blanket loans as high as $50 million.
Here’s what a blanket mortgage loan can do for different types of investors:
→ Real estate investors could use a blanket loan to purchase multiple properties in various locations.
→ House flippers could purchase several homes to fix up and resell or rent out.
→ Developers could finance a large piece of land and then divide and sell it as smaller, separate lots.
→ Businesses could buy multiple locations for their day-to-day operations.
Blanket mortgages typically include a release clause, allowing borrowers to sell properties and remove them from the blanket loan without refinancing or taking out a new loan. Additionally, the borrower has the option to refinance or retire the whole loan whenever they’re ready.
What is a blanket mortgage balloon loan?
Some lenders may offer a balloon payment structure on blanket mortgages. Balloon loans have smaller payments during the first few years, allowing the borrower to retain more cash. This may be especially useful for house flippers and developers who not only need to purchase the land, but also the building materials, equipment and labor. The last payment in a balloon loan is for the remaining loan amount, and is usually significantly larger than the payments made at the start of the loan.
How can I get a blanket mortgage?
Whether you’re convinced that a blanket mortgage is right for you or you’re still undecided, understanding how to secure a loan can be helpful. Here are the steps:
- Find a blanket mortgage lender. Commercial lenders offer blanket mortgages through their brokers and bankers. If you already have a relationship with a commercial lender or institutional bank, ask your point of contact for information. Otherwise, do an online search to find potential lending partners.
- Compare loan terms. You’ll want to compare interest rates, fees, terms and prepayment penalties between multiple lenders to find the best deal. Additionally, it’s important to understand the specifics of any loan you’re interested in, including credit score, down payment and debt-to-income (DTI) ratio requirements.
- Submit your application. Once you decide on a loan, it’s time to gather your important documents and complete your application. You’ll likely need to provide your tax returns and pay stubs, as well as details about your assets and liabilities.
What fees do you pay for a blanket mortgage?
It may be less expensive to cover the fees on a blanket mortgage for certain closing costs — such as loan origination fees — compared to the costs of taking out multiple loans. However, each investment property will need an appraisal, and the mortgage interest rate may start at 5% to 10%, depending on the lender’s risk assessment.
Blanket mortgage pros and cons
| 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: Having a single loan and one monthly 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 a blanket loan can mean that all of the underlying properties are at risk of foreclosure. Geographic limits: Blanket mortgage lenders may expect all of the financed properties to be in the same state or region. |
Is it hard to get blanket mortgage loans?
Blanket mortgage lenders typically have stricter requirements than traditional lenders — and are more likely to approve real estate companies and seasoned investors who buy properties in bulk. For the best chances of loan approval, you typically must have an existing real estate portfolio and sizable assets, including a good portion of cash on hand. Local credit unions and small banks generally don’t offer blanket mortgages.