Seasoned real estate investors or developers buying multiple properties at once may turn to a blanket mortgage to simplify the purchase process. Here’s what you need to know about these types of mortgage loans, including the pros, cons, and whether they’re a good fit for your situation.
A blanket mortgage is a single loan that covers multiple pieces of real estate.
With a regular investment property loan, one loan is secured for one property. For example, a house flipper buying three homes would apply for three mortgages. They could have three different mortgage lenders, interest rates, and repayment terms. Applying with a blanket mortgage streamlines the application, underwriting, and repayment processes so that one loan covers all three properties.
Blanket mortgages work a lot like traditional ones, except one blanket loan can be used to purchase more than one residential or commercial property. The borrower makes regular principal and interest payments to one lender. And all properties serve as collateral for the mortgage.
An important feature unique to blanket mortgages is the release clause. While all properties are tied to the blanket mortgage, you can typically sell or refinance individual properties without adjusting the entire loan.
Blanket mortgages are primarily for real estate companies or experienced investors and developers. Without sizeable assets, you may have a hard time getting approved. Be prepared to discuss your portfolio or track record managing multiple properties with the lender.
Applicants should expect to provide details for each property, such as the building’s condition, market value, and income generation.
Lenders may have stricter requirements for blanket mortgages, including a higher credit score, substantial cash reserves, and a larger down payment (up to 50%, depending on the lender).
A blanket mortgage has advantages but can also come with significant risks. Here are the pros and cons to consider.
Streamlined application process: Applying for a single mortgage instead of one for each property could save time.
Fewer fees: One application means paying one set of closing costs, including the origination fee, underwriting fee, and more.
Simpler repayment: Borrowers make one payment to one mortgage lender that covers all properties, making repayment more manageable than if they took out multiple home loans.
Easier portfolio management: The release clause lets you sell a property without repaying or refinancing the entire loan.
Stricter borrower requirements: Lenders take on more risk with blanket mortgages, so they enforce higher down payment and credit score requirements.
Potentially high closing costs: Although you’re paying fewer individual fees, blanket mortgages can have higher closing costs than traditional mortgages. For example, even if you pay just one origination fee, a 1% origination fee on multiple properties costs more than on one home.
Balloon payment structure: Depending on the terms, a blanket loan might have lower monthly payments up-front, but a larger lump sum due at payoff.
Significant foreclosure risk: Since all properties under the loan are collateral, you could risk losing them all if you default on the blanket mortgage payments.
Beginner house-flippers or buyers looking to purchase one or two homes should probably avoid these mortgages, which are geared toward experienced investors.
“Blanket mortgages … are for serious real estate players who own multiple pieces of real estate,” Christopher M. Naghibi, CEO of Black Crown Realty, said via email. “These investors have a big net worth, but they tend to invest their accumulated liquidity into real estate when they find a deal.”
However, even seasoned investors should think twice about the risks before applying.
“Make sure you completely understand your contractual obligations as an investor,” said Naghibi. “Make sure you’re managing risk across the entire portfolio because if one property underperforms, it could jeopardize the whole deal and you could lose all the properties.”
Are you feeling confident that a blanket mortgage will help you grow your portfolio? Here’s how to apply for one.
Find blanket mortgage lenders: You won’t find blanket mortgages at your typical bank or lender. Look for commercial lenders or mortgage brokers that cater to high-net-worth investors.
Understand borrower requirements: It’s not uncommon for a lender to look for an existing portfolio or experience developing or managing properties.
Complete the application: Gather your personal and business financial documents and details on each property so you can submit a completed application.
Thoroughly read the loan terms: Blanket mortgages can have complicated terms. Discuss the payment structure, release clause, and other critical loan features with your broker or lender before signing on the dotted line.
MORE: Learn how and why to get preapproved for a mortgage.
A blanket loan can be a good idea for experienced real estate investors, developers, house flippers, or landlords since it allows you to buy multiple properties with one mortgage. However, these mortgage loans can come with strict requirements, complex loan terms, and substantial risk if you can’t repay the loan. Make sure you understand and are comfortable with the terms before you commit.
You won’t find a blanket mortgage with your typical bank or credit union. Search for commercial lenders or institutions that serve high-net-worth individuals. Even though these loans are harder to find, it’s still critical to shop around and compare offers from multiple lenders.
It can be harder to qualify for a blanket mortgage since lenders are generally taking on more risk. Expect to show a higher minimum credit score and put up a larger down payment than you would with a traditional mortgage. Lenders may also look for applicants with significant cash reserves and previous experience investing in real estate or managing multiple properties.
Laura Grace Tarpley edited this article.
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