Blanket mortgages, which are also referred to as blanket loans , are typically taken out to cover the costs of purchasing and developing land that borrowers plan to subdivide into individual lots. In many cases, borrowers acquire properties within a large purchase that they intend to sell in individual parts. For example, flippers may seek blanket mortgages as a way to act quickly and take advantage of opportunities they see in the market.
If the investor identifies multiple properties they want to acquire, refurbish, and put back on the market, a blanket mortgage could offer more leeway to make such actions more possible. The clauses of such a mortgage may make it feasible to resell the properties as new buyers come forward individually. Depending on the terms of the blanket mortgage, it may or may not be necessary to refinance the loan when separate properties are sold.
Businesses with multiple locations they wish to own and operate out of may also seek blanket mortgages. This could apply to real estate developers who invest in commercial or residential property, such as apartment buildings or multifamily homes. Most blanket mortgages come with a release clause. This clause frees up the borrower from the portion of the loan that's already been paid for. So when the borrower sells a piece of property covered under the loan, they can use these funds to purchase another property.
This is common for developers who develop land and build and sell new homes. Once the homes are sold to the public, the developers can use the money to purchase new plots of land rather than pay down the loan. Blanket mortgages come with release clauses that allow them to sell properties and use the funds to purchase new ones rather than pay off the loan.
One of the primary benefits of taking out a blanket mortgage is that it allows the borrower to have more cash on hand. For instance, a property owner can save on various costs associated with applying for and closing on multiple mortgages. The property owner would only need to pay one set of fees for the blanket mortgage rather than separate fees on each property. The aggregate blanket mortgage may also take advantage of better interest rates or simply be negotiated to offer more favorable terms than having to pay separately negotiated loans.
This could free up more capital if it reduces the size of monthly payments, which in turn could offer them more resources to purchase more property.
But there are also pitfalls to this kind of financing. For instance, the costs tend to be higher than a traditional mortgage. Since the loan amount may be higher—because of the number of properties involved—the lender may require a higher down payment to secure financing. The terms of the loan also tend to be different from traditional mortgage loans. Lenders may require the borrower to make a balloon payment. The following groups benefit the most from a blanket mortgage.
Those in the fix and flip business often deal with various challenges when it comes to property financing. A blanket loan enables you to buy, improve, and sell homes all at once. The more streamlined process prevents house flippers from having to focus on a single piece of real estate.
Home values continue to rise across the country. That said, a well-established collection of investment properties can turn into your most valuable wealth-building tool. And, as we stated earlier in the article, a blanket mortgage gives you the opportunity to purchase other properties as you begin to sell. It's common for landlords to scoop up a handful of properties and finance them with a blanket mortgage. The idea is to bring in more tenants and add to one's rental property portfolio.
Remember to do your own research before moving forward with a blanket mortgage. Consider these advantages and disadvantages as you decide on a blanket loan. Less documentation - One mortgage translates to less paperwork for the borrower.
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The information on this site does not modify any insurance policy terms in any way. A blanket mortgage is a single mortgage that covers multiple properties, with the group of assets serving as collateral for the loan. Real estate developers and larger investors often purchase more than one property at a time, so a blanket mortgage allows them to simplify those transactions with one loan.
The blanket mortgage also allows the borrower to sell one property from the group and retain the loan for the others without needing to pay them off. Blanket mortgages have applications in both commercial and residential transactions, including those involving multifamily housing or apartment buildings.
They are also used by companies or developers who buy and flip homes. A blanket mortgage is also referred to as a blanket loan, and it can be refinanced just like any other mortgage.
Blanket mortgages are designed for companies that buy homes in bulk, or experienced investors or landlords that own a portfolio of properties, either commercial or residential. These savings translate to more cash flow for additional property or other projects.
Blanket mortgages require a higher down payment, however — north of 25 percent to as much as 50 percent — which can be a roadblock, McBride adds.
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