Blanket Mortgages: Everything You Need To Know

*Rocket Mortgage^® does not currently offer blanket mortgages.

If you’re a real estate investor looking to take on several new properties at once and managem them, a blanket mortgage is an option that may be worth exploring.

A blanket mortgage, which provides more flexibility than a traditional mortgage that only allows for the purchase of a single property, comes with several advantages – and a few disadvantages – that make it an intriguing tool for those who already own investment properties or want to break into the business.

What Is A Blanket Mortgage?

A blanket mortgage, also called a blanket loan, is a type of financing that funds the purchase of multiple real estate properties at the same time with a single loan. Popular among real estate investors, developers and commercial property owners who’d prefer to manage one loan rather than individual mortgages for each property, a blanket loan can streamline the lending process and reduce costs.

Together, all of the properties under the blanket mortgage serve as the collateral for the loan. However, it’s possible for the borrower to sell or refinance individual properties while still retaining the overall mortgage. This triggers a release clause, which means the borrower doesn’t have to pay off the entire loan.

Should You Consider A Blanket Loan?

Blanket loans are best for people who wish to purchase multiple pieces of real estate, not the everyday home buyer. Real estate investors, house flippers, builders, developers and businesses looking to open multiple locations might all be good candidates for a blanket mortgage.

If you’re buying your first rental property, a blanket mortgage may not be the best fit for you, though. Since you’re just getting your feet wet with a single investment property, it may be simpler to look into types of home loans with less strict requirements and lower closing costs.

For example, you might want to use a conventional mortgage to finance the purchase of a multifamily home. You’ll likely have the opportunity to refinance the loan into a blanket mortgage as your portfolio grows.

How To Get A Blanket Mortgage Loan

If a blanket mortgage sounds like the right option for you or your business, you can use the following steps to apply for one:

1. Find a blanket mortgage lender. Traditional banks and credit unions typically don’t offer blanket loans, so you may need to seek commercial lenders instead.
2. Compare mortgage interest rates and repayment terms. Before submitting a loan application, collect information from multiple mortgage lenders on their interest rates, origination fees, and minimum credit score and down payment requirements.
3. Fill out a loan application. Once you’ve chosen a lender, you’ll need to provide them with your personal information and details about your real estate business.
4. Wait for approval. Your loan will go through the underwriting process just like a conventional mortgage.
5. Close on the loan. After receiving approval from your lender, you can close on all of your investment properties.

Blanket Mortgage Pros And Cons

While blanket mortgages can be beneficial, it’s best to consider the pros and cons of this type of financing before pursuing it.

Pros

When blanket mortgages or blanket loans are the right fit, their advantages may include:

• Simplified financing: A blanket mortgage puts all of your properties under one single mortgage versus multiple mortgages, usually making your portfolio and mortgage payments easier to manage since you’ll have just one payment and interest rate.
• A lower interest rate: Bundling multiple properties into one mortgage could result in a lower interest rate than the rates you’d have on multiple mortgages spread across multiple properties.
• One closing cost payment: By purchasing multiple properties with one loan, you avoid paying closing costs multiple times. This will allow you to save money.
• Improved cash flow: Savings on interest and closing costs will boost your cash reserves, possibly allowing you to invest elsewhere.

Cons

No matter the advantages, blanket mortgages come with some potential downsides. It’s wise to consider these before getting a blanket loan:

• More risks: Since your properties are used as collateral for one another, you risk losing some or all of your properties to foreclosure if you default on the loan.
• Tendency to be harder to find: Not all mortgage lenders offer blanket loans, and those that do often have strict requirements, so you might have difficulty securing this type of loan.
• Higher closing costs: While you may not have to pay multiple origination fees, the closing costs on a blanket loan are much higher than the ones on a traditional mortgage.
• The possibility of a balloon payment: Your blanket mortgage may have a balloon payment. This feature may seem attractive since your payments will be initially lower, but at the end of the repayment term you’ll need to have the funds to cover a big payment consisting of the remaining loan amount.

The Bottom Line: A Blanket Mortgage Isn’t For The Typical Buyer

A blanket mortgage allows you to pool all of your properties into one loan, making it easier to manage your mortgage payment and the other conditions of the loan. While this type of loan isn’t the best fit for everyone, it can help real estate investors with larger portfolios consisting of many properties.

Before making a decision on whether to apply for a blanket loan, consider your financial situation and real estate investing goals. You can also take the opportunity to assess other types of financing or talk with a Home Loan Expert about your mortgage options.