When you want to buy one property, a conventional loan usually does the trick. But what if you want to buy multiple properties simultaneously? Do you need to take out two or more separate mortgages? Not necessarily — in some cases, you may qualify for a blanket mortgage.
Not sure what a blanket mortgage is or whether it’s right for your financial goals? Read on for more information about blanket mortgages, how they work, and whether they are right for you.
Blanket Mortgages Explained
In a nutshell, a blanket mortgage is one mortgage loan that covers two or more pieces of property/real estate. In a blanket mortgage, the real estate is held as collateral on the mortgage. Collateral is any property that the lender reserves the right to take possession of if the borrower defaults on the loan.
That said, blanket mortgages are fairly flexible. Within a blanket mortgage, individual pieces of real estate can be sold without having to retire or refinance the complete mortgage, as long as the new loan to value ratio continues to fit within the lender’s requirements.
The primary advantage of a blanket mortgage is the ability to purchase multiple pieces of property at the same time with one mortgage loan. For instance, say that there is a new condo development in your area being offered at a great pre-construction price, and you decide that you want to buy 3 units.
Rather than having to take out three separate mortgages to purchase all three properties, then having to manage three mortgage accounts each month, you may qualify for a blanket mortgage that packages all three properties into one mortgage. Should you be successful, you’ll only have one mortgage payment for all three properties and one associated interest rate.
Blanket mortgages are used very frequently by real estate investors, house flippers, and real estate developers. But while blanket mortgages can be advantageous, it’s important to keep potential pitfalls in mind so that you know whether these loans are right for your unique needs.
Blanket Mortgage Balloon Loans
Depending on the lender you work with, you may be able to qualify for balloon loans. Balloon blanket mortgages are blanket mortgages with so-called balloon structures; these have lower, interest only payments during the life of the loan, enabling you to retain your cash assets for business or property-related operations. Then at maturity, you pay off the principal amount in a lump-sum.
Blanket mortgage balloon loans are usually short-term, ranging from 12-36 months, and are best suited for investors who need short-term financing while they secure long-term financing, or sell the assets.
For example, if you are a real estate investor that wants to purchase a new investment property, a blanket loan can help you use the equity of your existing investment property to do so. This is called cross-collateralization, and it is the act of using an asset that's collateral for an initial loan as collateral for a second loan.
Who Uses Blanket Mortgages?
As touched on above, blanket mortgages are most commonly used for real estate investors. These are excellent alternative financial solutions to help borrowers finance purchasing several properties.
These individuals and groups include:
- Real estate investors. Real estate investors may use blanket mortgages to purchase multiple investment properties simultaneously or to retain extra cash assets they can use to improve those properties without having to take out and close multiple loans.
- Real estate developers. Similarly, real estate developers may take out blanket mortgages so they can purchase multiple parcels of land at once.
- House flippers. House flippers use blanket mortgages to purchase one or more properties at once, then keep some cash in reserve to make necessary improvements and flip the houses as quickly as possible.
House flippers also may use blanket mortgages to take advantage of prime opportunities in the market, such as purchasing multiple dilapidated or distressed properties at once before their competitors can
In addition, blanket mortgages are advantageous for any real estate investors or developers who may wish to sell one of the properties tied to the loan. The lender will usually set a release price, that will allow the property to be sold or refinanced, while keeping the mortgage on the remaining collateral.
Benefits of Blanket Mortgages
Indeed, blanket loans have a lot of major advantages and benefits.
For starters, blanket mortgages allow you to put all mortgaged properties under a single mortgage loan as opposed to multiple mortgages. This simplifies your portfolio and makes every month's bills much easier to pay. It's far easier to keep track of one mortgage payment, for instance, than it is to keep track of three or more.
Additionally, in the event that you are buying multiple properties at once, a blanket loan can help you shed some upfront costs at closing, since you are closing on just one loan instead of multiple.
On top of that, securing a blanket loan gives you access to combined equity from multiple properties, and the potential to close with no money down.
Downsides to Blanket Mortgages
That all said, there are some potential downsides to taking out a blanket mortgage.
For starters, all of the properties in the mortgage are used as collateral. So if you default on the loan, you may lose some or all of the properties to foreclosure, setting your portfolio back significantly.
Additionally, not all lenders offer blanket loans. Traditional lenders and credit unions typically do not offer blanket loans. Instead, you will need to source blanket financing from a local commercial lender.
Because blanket loans are more complex and having higher loan amounts than a traditional loan, the lender will be more strict on requirements; they typically offer a lower loan-to-value than a traditional loan, about 50-65%. They may also require proof of liquidity and interest reserves.
Lastly, if you take out a balloon blanket loan, remember that you may need to make a lump sum payment at the end of the loan term. This is why it’s important to have an exit strategy before you commit to a blanket mortgage. Common exit strategies include:
- Refinancing the loan for a longer term
- Sell the asset(s)
- Pay out from other source (e.g. selling a business, or another asset not associated with the loan)
How To Get a Blanket Mortgage
Considering taking out a blanket mortgage to purchase two or more properties at the same time?
You’ll need to follow these basic steps:
- First, find a blanket mortgage lender that you trust. Many credit unions and traditional banks don’t offer blanket loans, so you might need to contact commercial lending institutions instead. Vaster is a direct lender that offers custom structured blanket loans and specializes in the Florida and New York residential market.
- Next, compare rates and terms and submit your blanket loan application. You’ll also want to know what each lender wants in terms of down payments, documentation requirements, and closing costs.
- Applying for a blanket loan with a commercial lender is much more streamlined than applying for a traditional loan. Once the application is submitted, the lender will ask for a handful of documentation such as your government issued ID, copy of your bank statements, purchase contract, and latest mortgage statements.
- Then you need to wait for approval. Most blanket loan applications can be reviewed and approved in as little as 24 hours.
- Once approved, your lender will issue you a term sheet. Once you have executed the term sheet, your loan file will be sent to processing and be prepared for closing. With a commercial lender, going from application to closing can take anywhere from 10-15 business days.
Should You Take Out a Blanket Loan?
That depends on your goals and your financial strength. If you want to purchase several properties and benefit from only having one interest rate and one mortgage payment, a blanket loan could be a wise idea. Furthermore, a blanket mortgage may be a great financing solution if you are confident in your ability to pay down the loan on time and in full.
Contact Vaster Today
As you can see, a blanket mortgage might be the ideal financial solution for your upcoming property purchases. With the right blanket mortgage, you’ll cut down on paperwork, only have a single mortgage payment for multiple properties, and see other benefits.
Vaster can provide a custom structured blanket loan that fits your investment needs. Get approved in less than 24 hours with no minimum credit score requirement. Contact us today to learn more.
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