What Is a Blanket Mortgage?
A blanket mortgage, also known as a blanket loan, is a specialized financing option that enables borrowers to purchase multiple real estate properties under a single loan agreement. This type of mortgage is particularly popular among real estate investors, developers, and commercial property owners who prefer managing one loan rather than juggling multiple individual mortgages for each property. By consolidating the financing, blanket loans streamline the lending process, reduce paperwork, and can lead to cost savings.
In a blanket mortgage, all of the properties covered by the loan serve as collateral. However, it includes a release clause, which allows the borrower to sell or refinance individual properties without triggering the full repayment of the loan. This feature provides flexibility for investors and developers, enabling them to release properties from the loan one at a time while still maintaining the overall mortgage.
Should You Consider a Blanket Loan?
A blanket loan is not typically designed for the everyday homebuyer but is ideal for individuals or businesses purchasing multiple properties simultaneously. Real estate investors, builders, house flippers, and businesses looking to expand into several locations are prime candidates for this type of financing.
For someone buying their first rental property or those new to real estate investing, a blanket mortgage may not be the best option. Managing a single property is generally simpler with conventional financing options, such as traditional home loans or multifamily mortgages. However, as your real estate portfolio grows, refinancing with a blanket mortgage could become an attractive option to simplify your holdings.
How to Get a Blanket Mortgage Loan:
If you believe a blanket mortgage is the right choice for your needs, here’s how to go about it:
- Find a lender: Traditional banks and credit unions typically don’t offer blanket loans, so you’ll need to find a lender who specializes in commercial mortgages or real estate investment loans.
- Compare offers: Before committing, compare interest rates, loan terms, and fees from multiple lenders. Pay attention to credit score requirements, down payment conditions, and other criteria.
- Submit your application: Once you’ve selected a lender, you’ll need to submit a formal loan application that includes personal information, details about the properties you plan to finance, and relevant financial documentation.
- Underwriting and approval: Your application will go through an underwriting process, just like any other mortgage. The lender will assess the risks and approve or decline the loan.
- Close the deal: Once approved, you can move forward with the closing process and finalize the purchase of all your properties under a single mortgage.
Blanket Mortgage Pros and Cons:
Pros:
- Simplified Management: By consolidating multiple properties into one loan, you streamline the financing process, reducing the burden of managing several mortgages with separate payments and terms.
- Potentially Lower Interest Rates: Blanket mortgages can often provide more favorable interest rates than taking out individual loans for each property, helping you save on long-term costs.
- One Closing Cost: Closing on a blanket mortgage means you pay closing costs once, rather than for each property individually, saving you significant upfront costs.
- Improved Cash Flow: By reducing closing costs and possibly securing better interest rates, a blanket mortgage can improve your overall cash flow, freeing up funds for other investments or expenses.
Cons:
- Higher Risk: Since all the properties are bundled together as collateral, if you default on the loan, you could risk losing multiple properties, not just one.
- Harder to Find: Blanket mortgages are not offered by all lenders, and those who do may have stricter qualifications. This can make securing a blanket loan more challenging than a conventional mortgage.
- Potential Balloon Payments: Some blanket mortgages may have a balloon payment structure, where you make lower payments initially, but a large lump-sum payment is due at the end of the loan term. This can pose financial challenges if not planned for properly.
- Higher Closing Costs: While you avoid multiple closing costs, the closing cost for a blanket mortgage can still be substantial, as the loan covers multiple properties.
A Blanket Mortgage Isn’t for Everyone:
A blanket mortgage can be a highly effective financing tool for real estate investors with large portfolios or developers with multiple properties to manage. The ability to bundle multiple properties into one loan makes it easier to handle monthly payments, while the release clause provides flexibility when selling or refinancing individual assets.
However, this type of loan is not suitable for every buyer. First-time investors or those purchasing only one or two properties may find it easier and more affordable to go with traditional financing options. As with any significant financial decision, it’s essential to carefully evaluate your investment goals, financial situation, and risk tolerance. If you’re unsure, consider consulting with your Go-To Mortgage Advisor, Dustin Dumestre (Brokered Loan Officer) to help determine the best loan option for your real estate needs.