Typically, it’s hard enough to get a mortgage approved. There’s a lot of process to get done, and lenders are often strict with their terms and requirements.
The work would be heavier if you were to purchase more than one property since this means you’d have to go through that process over and over.
Fortunately, there are lenders who offer just what you need to make things simpler. It’s called a blanket mortgage.
With this loan, you wouldn’t have to worry too much about having trouble keeping track of all your properties. There are lots of other benefits that come with it as well, like lower costs and less hassle.
What Is a Blanket Mortgage?
A blanket mortgage is made to finance the purchase of more than one property at the same time.
Typically, real estate investors and commercial property owners make use of this because they buy several properties all at once. By putting together multiple mortgage applications into one, it becomes a more efficient process since they are able to save time.
Blanket mortgages also help in reducing costs since these are taken out for purchasing and developing land, which developers would usually subdivide.
If you’re looking to take a hold of multiple properties, a blanket mortgage may be a great choice for you.
How to Get a Blanket Mortgage
Getting a blanket mortgage requires the same documents as a traditional loan.
The first step is always to get your financial documents in order, from tax and credit reports to bank statements. Some lenders also require your financial history in terms of the business you have.
While buying multiple properties is a big investment for you, it’s the same for your lender. Your success will also determine theirs, so be sure to let your lender know that you understand what you’re signing up for.
Provide them with a well-thought-out plan, including what you intend to do with the properties.
Finding a lender who will accept you may take time, but be sure to stay patient and dedicated throughout.
Where to Get a Blanket Mortgage
Looking for lenders for blanket loans can take more time than that of a regular loan since the mortgage is non-traditional.
However, there are certain places where you can look to get a blanket mortgage.
Smaller local banks are usually the ones who open blanket mortgages because they understand that local builders and developers need this.
Local banks are more likely to provide blanket loans depending on how coordinated they are with local developers and real estate investors.
You can also look at commercial banks, particularly if you are a developer. Commercial banks offer blanket loans mainly for their clients who are related to or are in this field.
A large part of blanket lending comes from private lenders.
Blanket loans usually require atypical underwriting, which private lenders can offer. They typically have in-house underwriting processes that differ from that of a conventional or government-backed lender.
Most portfolio lenders would keep their loans in-house. By doing this, they will be able to approve situations that institutional lenders wouldn’t naturally permit.
There are a lot of different options for lending that can be found online, and it is continuously growing.
Online lenders have higher interest rates and points than what a traditional lender would offer. Although, this is based on how creative and flexible the lending will be.
How Many Properties Can You Have in a Blanket Mortgage?
Traditional lenders put caps on the number of mortgages a borrower can have, particularly if they are a real estate investor.
The set limit is usually seven to ten mortgages. This protects the lender from receiving a large loss in case the borrower defaults on the loans. However, it holds back the investor’s ability to grow their investments.
In a blanket mortgage, there are no limits to the number of properties you can put under one loan.
A blanket loan is counted as one application, allowing an investor to apply for more individual or blanket mortgages.
Although it’s important to note that the more properties that are put under a blanket, the larger the monthly payment will be. This could also increase the potential risk of all the properties getting closed if payment gets delayed. So, be sure to put an amount you can handle under one blanket.
Pros of a Blanket Mortgage
Applying for a mortgage is time-consuming, and sometimes even a hassle.Imagine the load you’d be carrying if you had to apply for more than one property. The thought may discourage you.
Instances like these are where a blanket loan plays its role.
It’s allows multiple properties to get processed into a single application, not only reducing time and increasing efficiency.
Having individual properties means you will have to apply for multiple separate mortgages, which also means each property comes at their own cost.
If your properties are under a blanket loan, you would be making a single payment across all of the properties rather than varying payments for each of them.
Juggling information on more than one property can be troublesome, especially if they are under different mortgage lenders.
With a blanket loan, you have less records to handle.
Having five blanket mortgages with five properties each is far better than having 25 separate loans to cover and keep track of.
No property limitation
Real estate investors are given a limit when it comes to the number of mortgages they can obtain, which is usually seven to ten loans under conventional or government-backed lenders.
This can affect how big your investment portfolio grows by cutting back the number of properties you’re allowed to handle.
Through a blanket mortgage, you will be able to take hold of more properties, but the increase of the number of loans you have won’t go over the limit.
For example, you can have a blanket loan with six properties. This counts as one mortgage, giving you room for six or nine more loans regardless of how many properties are under the blanket.
Access to more funds
With a blanket mortgage, property owners can gain access to funds through refinancing and equity loans.
This is especially helpful when you’re looking to finance a property, make an addition to the investment, or repair the existing properties.
Loans are customizable
A lender will usually approve an investment that is secure and understandable, making it easier to underwrite. If the situation is unusual, mortgage lenders aren’t likely to agree to it.
This is one of the reasons most traditional mortgages are only for single properties.
Lenders who handle blanket loans are aware of these situations and likely even familiar with them. Therefore, they could approve of a loan, depending on the financial potential or your records as an investor or developer.
Cons of a Blanket Mortgage
Hard to acquire
Since blanket loans are larger and uncommon, it would be hard to find a lender.
It would also take a lot to get approved because the lenders analyze your situation as an investor or developer as well as how well the deal can turn out financially.
Make sure you have all the paperwork ready, along with the documents to support it, whether it’s about the property, yourself, or the deal.
Also, prepare yourself for rejection, regardless of how convincing your deal is. It normally takes some time and a few different lenders before you get approved.
It’s true that the costs for the mortgage are significantly reduced. However, this doesn’t exactly apply to the amount you pay monthly.
The loan simply puts together the properties into one space, which means the value of every holding is combined.
Depending on how much properties are under the blanket, expect your monthly mortgage payment to be large.
Naturally, it would be harder to make delays with a full payment of $5,000 rather than ten separate payments of $500.
Falling behind on a payment is a bigger blow to a blanket mortgage rather than individual loans.
With your properties under individual mortgages, only the property with a delayed payment is at risk for closure.
However, all properties under a blanket loan will be at risk in the event that one property goes late on its monthly payment.
Who Should Use a Blanket Mortgage?
A blanket mortgage is most effective for people who buy multiple properties in one transaction, especially for long-term purposes. The benefits vary based on who will be taking out the loan.
As a real estate investor, it will be harder to keep track of payments and make sure a lender’s requirements are met when there are a lot of properties to deal with.
With a blanket loan, mortgages for various properties will be simplified into one. This doesn’t only refer to the application for each property but the monthly payments and annual tax as well.
A reduction in the number of loans an investor handles open the chance for them to refinance.
There’s also a release clause, which means individual properties can be sound without affecting the blanket loan. This way, a profit can come up from existing properties without having to pay off the loan first.
This will also make room for new investments to get added under the blanket.
Developers or Builders
Usually, a bank won’t provide developers with a construction loan unless the land they will work on is free and not under any mortgage.
If the developer were to default on the loan for the lot, the lender is the one who would be at risk.
The release clause in a blanket mortgage is also applied here. A developer can request a lot to be released from the lien, given that the loan is properly structured.
If the lender agrees, the lot will be free and clear, which makes it possible for the developer to apply for a construction loan to build on the property.
Are Blanket Mortgages a Good Tool for Investing in Real Estate?
One way a real estate investor grows their investment portfolio is by owning more rental properties.
But the more properties they take in, the more complicated and troublesome it gets to keep track of each one and the payments every month.
A blanket mortgage is great help for a real estate investor, especially if they intend to purchase multiple properties at once.
This will allow them to keep control of every property as one entity rather than multiple ones, making it easier for them to take note of important payments and changes.
Although there are risks, a blanket mortgage makes the job of a real estate investor simpler.
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