If you are an investor, you need to know about “blanket mortgages,” a potentially useful tool that can help you purchase multiple properties with only one loan.
They are not for everyone, but they could be the right tool for building your investment portfolio.
What is a Blanket Mortgage?
A blanket mortgage, also known as a blanket loan, is simply a single loan that finances the purchase of multiple properties. If you use one loan to buy one or more properties, whether those properties are commercial, residential, or undeveloped land, you are using a blanket loan.
A simple way to remember is that one loan “blankets” multiple properties.
Businesses and investors use blanket loans for a variety of purposes. From buying investments to purchasing operational properties to refinancing current loans, these mortgages can simplify and even lower your monthly mortgage budgeting.
One of the top advantages of a blanket loan is the simplicity, both in paperwork and payments. Typically, you would have a single and separate mortgage for each property; if you have seven properties, you have seven mortgage applications, seven approval processes, and seven monthly payment that need to be managed and scheduled. With a blanket loan, all seven properties (or four or twenty or whatever) can be under a single application and approval.
Because everything is under one loan, there can be savings on initial costs, including closing costs and mortgage fees.
There is also the potential that you’ll be able to expand your investment portfolio with a blanket mortgage. Some lending institutions only allow for so many mortgages at a single time, regardless of how well managed these mortgages are. For example, you may be limited to 15 mortgages. If you own 15 properties, all with individual mortgages, you may have trouble finding a loan to purchase a new property. A blanket mortgage may allow you to workaround this requirement.
Key Feature: No “Due-on-Sale” Clause
A common feature for a typical mortgages (not blanket) is a “due-on-sale” clause. Essentially, this clause requires the mortgage to be paid in full if the borrower sells the property. Suppose you still own $500,000 on your mortgage but sell your home and move across the state. With most mortgages, the due-on-sale clause would require that you repay the $500,000. This is a common aspect for virtually all residential home mortgage loans.
But with a blanket loan, this clause does not exist. Instead, there is usually a “partial release” clause. Let’s say you use a blanket loan to purchase four properties. Five years later, you decide to sell one of the properties. Instead of having to repay the entire blanket loan after the sale of one property, you simply repay a portion of the loan. You only have to repay the portion of the loan represented by that property. So if that one property represented an even 25% of the loan, you would only need to pay back 25% of the mortgage.
Uses for Blanket Loans
These loans have many purposes for both investors and businesses, including…
Purchase Multiple Rental Properties
Whether you are just starting a real-estate portfolio or you want to swiftly expand your holdings, a blanket mortgage can be incredibly useful. With these loans, you can go through the process just once, then purchase two, three, four properties or more. (Talk with your lending agent about the amount of properties, as it will vary.)
Stay Prepared for Fix-and-Flip Purchases
When a good deal comes along, it helps to be prepared. Getting pre-qualified for a blanket mortgage will help you stay ready to respond to purchase opportunities, opportunities that may disappear if you wait. If two fix-and-flip properties come available at the same time, a blanket mortgage will allow you to respond fast.
Refinance Multiple Mortgages into One
Owning multiple financed properties can be extremely complex; you’ll have different payments with varying interest rates due at different times. All of the mortgages could be refinanced into a single blanket mortgage, which will not only simply payments, but could result in a lower interest rate. (A low interest rate, however, is not a general advantage for blanket loans, just a possibility.)
Purchase Undeveloped Property
These loans are often used by land and real-estate developers to purchase multiple undeveloped properties. The properties could be connected (such as two adjacent but separately-owned properties) or they could simply be development opportunities that come available simultaneously.
Businesses Purchasing Multiple Properties
Business that need to expand into new territories or create new facilities often use blanket loans. In one loan, businesses might (depending on the industry) purchase three properties: one for office administration, one for vehicle storage and maintenance, and one for customer support and service.
Caution and Prudence is Always Required
With all loan, caution and care if required. With blanket mortgages, it’s important that you understand the risks and manage payments effectively. One of the biggest risks comes from the potential consequences of missed payments and default on the loan. If you default on payments with a blanket mortgage, it’s possible that the lender could seize not just one of your properties, but the entire collection of properties purchased with the loan. If you have a blanket mortgage for six properties and are unable to make payments, you could potentially lose all six.
With typical loans, the risk is spread out; you can only lose one property on one defaulted loan. But with a blanket mortgage, you could lose everything if you are not careful.
There are other risks and downsides, including harder qualifications and shorter terms, although both of these depend on the specific lender.
Dedicated to Honest, Reliable Service
If you are interested in a blanket mortgage, contact our team today. We’ll help you make the right choice for your investment purchase, and help you decide whether a blanket loan is right for you.
A very responsible and experienced professional with his highly effective team
I really enjoyed working with Chad Baker and the rest of the team. This was our first time buying a home in California and we started with unnecessary assumptions based on our previous experience as home-owners in a different state. Chad and his team were available throughout the whole process, explaining the state differences, answering all our phone calls and emails quickly and directly, and providing detailed weekly status reports so that all parties including agents knew exactly where we were in the process. Chad was very experienced and provided customized loan products for us to consider, which definitely facilitated our transaction. I recommend the Chad Baker team! ”
I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.
“Juliann – Thank you very much for your patience and help with everything. I can say 150% that we could not have gotten through this without you. I have been through this process before a few times BUT never have received this type of care/attention. This process is intense and you managed to humanize this life changing experience for us – rather than being a loan number. If you or Home Point ever need an official recommendation from us, you can count us in.”