Blanket Mortgage

With so many mortgage options available, it can be hard to know which one is best for your business. You’ve heard about a blanket loan, but you aren’t sure if it’s a better option than a traditional mortgage. In short, a blanket mortgage allows real estate investors to purchase, hold and then sell several properties under one financial agreement. This is beneficial because it will enable the investor to have only one mortgage instead of one for each property. Blanket loans let you sell a property and then use the proceeds from the sale to buy more property. Here’s how it works.

Blanket Mortgages: The Basics

Blanket mortgages are useful for investors who already own several properties or who are considering taking on a multi-property deal. In either situation, have multiple properties means that you will have multiple mortgages and probably lots of administrative work and financial responsibility, too.

Imagine if you owned several rental properties and each had its own mortgage. Every month you would be responsible for making individual payments on each of the properties to several different banks. You would have to be aware of the ever-changing interest rates, terms, and requirements of each mortgage. The more properties you own, the more confusing and time consuming it becomes to manage them all. That’s what happens when you have a traditional mortgage. But with a blanket mortgage, you can have all of your properties on one mortgage. You’ll make one payment to one bank each month, and you have one set of rates and terms. You will no longer have to juggle various mortgages.

In addition to saving you time, a blanket mortgage can help you cut down on costs when compared to making a bunch of individual mortgage payments. It also provides you with more financing options that you would otherwise have. Plus, you can sell your properties without making big adjustments by leaving the finances intact.

Who Are Blanket Mortgages Right For?

Blanket loans are well suited for long-term builders, investors, and developers who deal with multiple properties. Each is benefited differently. For example, investors benefit from the reduced loan administration while developers and builders can quickly overcome the typical financing challenge that’s unique to their situation.

Investors who own several properties tend to have a growing business portfolio. As this happens, a blanket mortgage becomes an attractive option. This is because the more properties you own, the more critical it becomes to make sure you coordinate all of the payments on the mortgages. You also need to stay on top of the lender’s requirements for each mortgage, and this can be hard to do. Blanket mortgages allow you to consolidate your mortgages into one, which reduces the amount of paperwork you have to do with both monthly and yearly tasks that an investor needs to deal with.

Additionally, blanket mortgages allow investors a workaround for roadblocks that usually occur when they are limited on the number of mortgages that they can have at one time. And since blanket mortgages reduce the number outstanding loans you have, it allows the investor to pursue additional financing.

Finally, investors benefit from a release clause, which allows them to sell individual properties without affected the terms of the blanket loan. This means that investors can profit off of existing properties without having to pay off the loan. At the same time, they can acquire new properties by adding financing options that already exist to their blanket.

Developers and builders can benefit from blanket mortgages, too. For example, builders and developers can use blanket mortgages to help release liens on their land. Usually, a developer needs to acquire land to build on, but banks won’t give them a construction loan unless the land does not have a mortgage. This is because lenders think that if the developer defaults on the loan that they are given for the lot, then the lender who loaned the construction money is at risk.

But with a blanket mortgage, developers can use the release clause in their favor by requesting that the lot be released from a lien. Say that a developer got a blanket mortgage on a dozen properties, but there is a lien on one of the lots. If there is enough equity in the lot and the lender is OK with it, then the developer can request that the lot be cleared of the lien and move forward with getting a construction loan to start building.

What’s the Difference Between a Blanket Mortgage and a Traditional Mortgage?

Blanket loans are not ideal for some situations. It’s important to weigh the pros and cons when comparing a blanket mortgage to a traditional loan. For example, there are two ways in which a blanket mortgage is better than a traditional mortgage: cost and reduce bookkeeping. Other benefits include no limits as to the number of properties obtained and enhanced power when it comes to making future loan deals. But on the flip side, blanket mortgages can be hard to obtain and have larger payments. Here are some of the fundamental differences of blanket and traditional mortgages to be aware of.

Pros of Blanket Mortgage

  • Lower fees.

If you were to get individual mortgages on each property you own, then you would have to pay the costs on each. In other words, you would have to pay application fees, points, and loan origination fees on every mortgage you have. Acquiring all these costs would mean that you would have to refinance or that you are already planning on taking out another loan just to cover them. But with a blanket mortgage, you only have one set of costs to pay. For examples, you’ll only pay one application fee, one set of points and one loan origination fee no matter how many properties you have. In this regard, a blanket fee is the smarter choice when handling the costs and expenses of multiple properties.

  • Less paperwork.

If you’ve ever had to deal with multiple mortgages or loans, then you know how difficult it can be to handle them, especially if they are from different lenders. And for most busy business owners, less paperwork means fewer hassles and more time to run your business. Think about what it’s like trying to juggle as many as 60 units. You’d have to try to coordinate all those payments and their lenders for 60 different mortgages. But if you have a blanket mortgage, then you could reduce your mortgages to 10 for six properties each. Balancing ten mortgages is much better than trying to juggle 60 each month.

  • No property limits.

As an investor or builder, putting a cap on the number of mortgages you own can affect the growth and development of your business. Most of the time, traditional or government-issued mortgages are limited to seven to ten, depending on the situation. But with a blanket mortgage, you can reduce the total number of loans that are kept on file so that you can obtain more. For example, instead of having six individual loans, you can consolidate them into one blanket mortgage and then obtain another five properties until you reach your limit. This allows you to grow your business without having too many loans to manage.

  • Loans are customizable.

Most blanket loans are more customizable than traditional loans. This is because lenders who issue traditional loans are looking for secure, clear-cut investments that can be written up quickly. Plenty of lenders won’t approve a conventional mortgage if the situation is unusual because it means that they have to work harder to work out the details. This is why most traditional mortgages are only desirable for single properties. Blanket mortgages can be customized and approved based on your financial opportunities and your track record as a developer or investor. The process of getting accepted for a blanket mortgage is only handled by lenders who are used to dealing with unique situations, so they are already familiar with the process before approving you.

  • More borrowing power.

A property that is valued at $500,000 will give you more borrowing power than five properties that average $100,000 each. This can help you obtain a loan for bigger projects in the future because you’ve already shown that you can handle a blanket loan for a $500,000 mortgage as opposed to five smaller loans.

Cons of Blanket Mortgage

  • Hard to obtain.

Sometimes, blanket mortgages can be hard to obtain. This is because the loans are larger and more specialized, making them hard to find a lender that will approve you. Getting approved usually requires you to undergo lots of paperwork to verify that you are a reliable and successful investor or developer that can handle the responsibilities of several properties. Keep in mind that you may be asked to provide a lot of documentation and paperwork for yourself and your business, as well as any other investors involved. You’ll also be required to provide documentation regarding the financial aspect of the deal itself as well as your business entity. Even after you go through all this work and turn in what you feel like is a convincing package, you might still be turned down. Be prepared to approach multiple lenders before being approved by one.

  • Payments are larger.

Your blanket loan might be higher than a traditional loan for the same property because it bundles several properties into one mortgage and assumes more of a risk for the lender. In other words, a single loan combines the value of several underlying holdings. Whether you are paying six $100,000 mortgages or one $600,000 mortgage, your obligation will be the same. But there tends to be more wiggle room with rates and terms on a single mortgage than there is with several properties combined.

Additionally, you could be in serious trouble if you default on a blanket loan. This is because when you fall behind on making a payment for a single loan, it’s still only one loan and one property that you’re putting at risk. But when you don’t pay your blanket mortgage on time, you put all of your properties that are on the loan at risk.

Best Blanket Mortgage Lenders

Blanket mortgages are non-traditional loans, which makes them a bit harder to obtain or even find a lender that will deal with them. Here are some of your best options for finding a blanket mortgages lender.

  1. Smaller Banks

Smaller banks are more likely to offer blanket loans because they are more understanding when it comes to the needs of their builders and investors. Traditional banks such as some conventional banks with savings and loans offer blanket mortgages. Look for one that likes to promote local business as they will be more likely to work with you and your properties. Commercial banks are another good option because they are larger banks that tend to be more organized, which makes them an appealing option for investors and developers.

  1. Portfolio Lenders

Portfolio lenders such as Lima One Capital, PGIM, and CoreVest are an attractive option for obtaining a blanket mortgage because they keep their loans in-house rather than selling them on the market. Because of this, they are more flexible and can approve loans that banks never would. This is important because blanket loans tend to be asset-driven and require unique underwriting, which is something that conventional lenders don’t always have time for.

  1. Online Institutions

The number of online lending institutions is growing each year, which makes it a competitive field for investors and developers. Many online lenders are more flexible with what they’ll approve. Lots of them specialize in working with builders and investors, so they are familiar with the wants and needs of these types of business owners. They tend to be more understanding when it comes to what you need in a blanket mortgage. But this flexibility comes at a cost. Online lenders may charge higher rates for their terms than a traditional lender would, so you’ll have to decide if the flexible conditions are worth the price. Your best bet is to shop around and approach several lenders before making a decision.

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