A blanket mortgage is a specialized financing tool that enables the purchase or refinancing of multiple real estate properties under a single loan. Developers, investors, and house flippers may find blanket loans beneficial.
Note: SoFi does not offer blanket mortgages at this time.
Here’s more about how they work and their pros and cons.
Table of Contents
- Key Points
- • Blanket mortgages allow investors and developers to finance multiple properties under a single loan.
- • All properties under the loan act as security, so defaulting can jeopardize the entire portfolio.
- • Most blanket loans have release clauses, which allow borrowers to sell individual properties while retaining the original mortgage.
- • Lenders typically enforce strict qualification standards, high down payments, and high upfront costs due to the increased risk and complexity of these loans.
- • Benefits include simplified administration and enhanced flexibility for expanding a property portfolio.
What Is a Blanket Mortgage?
A blanket loan is a single mortgage loan that covers two or more pieces of residential or commercial real estate, with all properties serving as collateral.
The borrower can sell one of the properties while keeping the remaining assets as collateral for the full term. They can then sell a second property, a third, and so on, without paying off the entire loan.
You may be able to negotiate a blanket mortgage that lets you buy, sell, or substitute properties with minimal angst.
Recommended: Investment Property Guide
How Does a Blanket Mortgage Work?
A developer can use a blanket loan to purchase a large tract of land and finance the development of a new housing subdivision without taking out separate loans for each individual plot.
If the developer’s blanket mortgage includes a partial release clause, the lender could release specific lots from the mortgage when general contractors or families buy them while keeping the remaining unsold parcels of property as collateral for the outstanding loan balance.
Investors who buy fixer-uppers, renovate them, and sell them for a profit may use a blanket mortgage to finance several properties under one loan. Lenders may allow the developers to release individual properties from the blanket loan as they refurbish and sell them.
A blanket mortgage with a release clause allows borrowers to sell an individual property, repay a portion of the loan principal, and use the remaining sale proceeds to buy other properties.
Lenders can create their own terms, so it’s important to be clear about a loan’s parameters. They will want to know about each property the blanket loan covers, including its intended use, location, and condition. If a borrower is planning a housing development, the lender may require proof of experience.
Pros and Cons of a Blanket Mortgage
Each of the different types of mortgages has distinct pros and cons. This includes blanket mortgages.
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Pros:
• Developers, investors, and the like can expand their portfolios and circumvent any limits on the number of individual mortgages one borrower can hold. It allows borrowers to close on just one loan, which can save on closing costs.
• The financing process generally involves one credit approval and results in fewer monthly payments.
• If the loan is set up with a balloon structure, payments may be low during a predetermined time frame, perhaps interest only.
• The interest rate may be more attractive than separate loan rates, which can lead to lower monthly payments (and contribute to better cash flow).
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Cons:
• Lenders typically require a down payment of up to 50%.
• The borrower may need to have significant assets and an excellent credit score to qualify.
• A balloon loan structure often results in owing a large amount when the term ends.
• If the borrower defaults on one property, the lender may foreclose on all properties the mortgage covers.
Recommended: Home Loan Help Center
Should You Consider a Blanket Mortgage?
If you qualify financially and want to buy multiple properties under one mortgage while retaining the flexibility to sell them off and release them from the loan without paying off the entire mortgage, a blanket loan may make sense.
Blanket mortgages can be elusive. If a blanket loan seems like a good choice, you can inquire about one at banks that offer commercial loans or talk to a mortgage broker.
A competent lender or broker should be able to answer your questions regarding mortgages.
The Takeaway
Blanket mortgages are specialized loans that developers, real estate investors, and house flippers use to finance multiple properties under a single loan. Blanket loans have pros and cons. Qualifying for one isn’t for the faint of heart.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What is an example of a blanket mortgage?
If someone wants to buy fixer-upper homes to rehab and resell, they may use a blanket loan to purchase several properties at once. As they refurbish and sell each property, the lender can release it from the blanket loan while retaining collateral for the remaining properties.
Is it hard to get a blanket mortgage?
Lenders typically want borrowers to have sizable assets, excellent credit, and large down payments. Therefore, blanket loans primarily target established borrowers with solid financials.
Who would most likely obtain a blanket mortgage?
Businesses may apply for a blanket loan to buy commercial property. Landlords, both commercial and residential, may also utilize this type of loan. So can construction companies and people who flip homes.
Is a blanket loan a good idea?
Under certain circumstances, a blanket loan can be a useful form of financing. Purchasing multiple properties with a single loan requires one approval. Lower closing costs and more attractive interest rates and payments are other potential benefits. That said, requirements to qualify for this type of loan can be significant.
Photo credit: iStock/oatawa
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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