What Is A Blanket Mortgage?

Read Time: 6 minutes

Typically, a financed real estate property is attached to a single mortgage loan. But when you want to invest in, rent out, flip, or develop several properties, it can be cumbersome to take out separate mortgage loans for each address you have.

The solution? A blanket mortgage loan, which can cover multiple properties in a single loan.

Take the time to learn more about how blanket mortgages work, their advantages and disadvantages, who they are ideal for, and the steps involved in getting a blanket mortgage loan.

Understanding blanket mortgages and how they work

Sometimes referred to as a “blanket loan,” a blanket mortgage is a type of loan that covers multiple properties. Instead of having individual mortgage loans on each property you own, with a blanket mortgage you can have a solitary loan covering several properties with cross-collateralization.

“Here, a group of assets collectively serves as collateral for a single loan,” explains Stephen Kibbel, a certified financial planner and chartered financial consultant. “This is different from a traditional mortgage, where each property would have its own separate loan.”

Real estate investors and developers often turn to blanket mortgages to streamline the financing process, enabling them to group multiple property transactions under a single loan.

Pros and cons of blanket mortgage loans

Blanket mortgage loans have their pluses and minuses. It’s important to weigh the benefits and drawbacks carefully before committing to this type of financing. 

On the plus side, blanket mortgages provide:

  • Convenience. This loan requires only managing payments and terms for one mortgage loan instead of multiple loans. “One loan means reduced paperwork, one interest rate, and only one monthly payment to worry about,” adds Kibbel.
  • Possibly lower interest rates. According to Dmitri Bourchtein, CIO and Co-Founder of SHARE, a venture-backed real estate investment and asset management company, blanket mortgages may charge lower interest rates due to the lender’s lower risk through cross-collateralization of multiple underlying properties.
  • Flexibility. “Blanket mortgages typically come with a release clause that allows the borrower to sell individual properties that make up the collateral without having to repay the full loan balance; instead, you can pay down the loan on a pro-rata basis,” Bourchtein notes.
  • Simpler closing costs. Instead of having to pay closing costs and origination fees on several mortgage loans, you only have to pay these expenses on a single loan.
  • Greater cash flow. The savings earned from lower closing costs can be reinvested in your operations or properties.

However, the downsides of blanket mortgages include:

  • Extra risk. If you default on your blanket mortgage loan, all of the collateralized properties covered by that loan can be at risk of foreclosure instead of a single property associated with a traditional/conventional loan.
  • Complexity. “Due to the more complicated nature of a blanket mortgage, borrowers may have a harder time qualifying for the mortgage due to stricter lender requirements,” cautions Bourchtein.
  • Higher down payments. Although there is only one set of closing costs, these settlement costs can be more expensive than single-property loans charge. Also, blanket mortgages could require a down payment as high as 50% of the combined purchase price, depending on the lender’s rules.
  • Balloon payments. “Some blanket mortgages have lower initial payments followed by a large lump sum payoff required,” continues Kibbel.
  • Limited availability. It’s more difficult to find lenders that provide blanket mortgage loans versus traditional/conventional mortgage loans.

Good candidates for a blanket mortgage

A blanket mortgage could be ideal for several types of borrowers, the experts agree.

“Real estate developers can use a blanket mortgage to finance large plots as well as their subdivisions under one loan, benefiting from the release clause as properties are sold,” says Bourchtein. “Real estate investors and flippers can streamline finances and manage multiple properties with this single loan, too, offering convenience, potential cost savings, and simplified acquisitions.”

Others who stand to benefit from a blanket mortgage, he adds, include business owners with multiple locations, borrowers seeking to refinance by consolidating multiple properties into a single loan (assumedly receiving better terms and a lower interest rate), and developers/investors with an exit strategy – meaning those planning to sell or develop properties soon and who want to leverage the release clause.

“Let’s say you are a developer who is building a subdivision with 10 homes,” says Andrew Lokenauth, a personal finance expert with BeFluentinFinance.com. “If you were to get a traditional mortgage loan for each home, you would have to make a down payment of 20% of the purchase price for each property. But with a blanket mortgage loan, you could make a down payment of 20% of the total purchase price for all 10 homes, which could save you a significant amount of money.”

Imagine you are an investor who flips homes and has identified several properties in the neighborhood for purchase.

“Using a blanket mortgage, you can acquire all the properties with a single loan, streamlining the administrative process and potentially saving big money through a lower interest rate and fewer closing costs,” Kibbel says.

Or, assume you are a landlord eager to save time spent every month on your 10 properties.

“With a traditional mortgage, you may have to spend 30 minutes every month to manage each loan and handle things like loan payment and accounting, totaling five hours per month total. But if you had a blanket mortgage, maybe you could shave that time down to one or two hours per month spent managing a single loan,” says Bourchtein. 

How to get a blanket mortgage loan

Not every lender offers blanket mortgage loans. While some banks, credit unions, and mortgage lenders offer blanket mortgage financing, you may have to turn to a specialized or commercial lender that deals in financing for investments or businesses.

Here are the steps required to secure a blanket mortgage loan:

  1. Research different lenders that offer this financing, shopping around and comparing loan offers and rates carefully. 
  2. Get preapproved for a loan so that you can estimate your potential interest rate, monthly payments, and terms.
  3. Collect the documentation required for the loan application, including details on each property, financial statements, proof of income, credit history, and more.
  4. Pick your preferred lender and submit a formal loan application.
  5. Await underwriting approval. The lender will evaluate your financials and creditworthiness and conduct appraisals on each property to assess their market value.
  6. Close on the loan after getting approved, sign all paperwork, and await imminent disbursement of loan funds.

The bottom line

A blanket mortgage loan can be a valuable and preferred option for many borrowers. But it’s crucial to thoroughly parse the risks and rewards before pursuing this type of financing.

That’s why the pros advise consulting with a qualified financial advisor and/or real estate attorney prior to making your decision.

“Blanket mortgage loans can be a great way to save money on closing costs, origination fees, and interest rates. They can also make it easier to manage your finances, with only one monthly mortgage payment to be concerned about,” Lokenauth explains. “However, remember that they can be more difficult to qualify for than traditional mortgage loans, and if your properties underperform and you can’t repay your debt the lender can foreclose on all your properties.”

Erik J. Martin

Erik J. Martin is a Chicago area-based freelance writer and public relations expert whose articles have been featured in AARP The Magazine, Reader’s Digest, The Costco Connection, Bankrate, Forbes Advisor, The Chicago Tribune, and other publications. He often writes on topics related to real estate, personal finance, technology, health care, insurance, and entertainment. He also publishes several blogs, including Martinspiration.com and Cineversegroup.com, and hosts the Cineversary podcast (Cineversary.com).

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