If you are a real estate investor with a large portfolio of homes or want a large portfolio of homes, you may benefit from the blanket mortgage. This program allows you to have ownership of multiple homes under one mortgage program. You can sell properties within the mortgage at any time without the ‘due on sale’ clause coming into effect.
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Keep reading to learn about this valuable program and how it may benefit you as a real estate investor.
What is a Blanket Mortgage?
First, let’s look at the definition of the blanket mortgage. This mortgage is one loan that allows you to
buy multiple properties as an investor. It cuts down on the paperwork and red tape that is involved when you buy multiple properties, each with their own mortgage.
No matter how many properties you buy with the blanket mortgage, you make one single mortgage payment each month. This loan has a single rate and terms, cutting down the administrative nightmare that carrying multiple loans can cause.
Many investors are able to get their hands on a higher amount of funds while paying lower closing costs with the single loan. The program is best for investors that plan to stay in the real estate investment business for the long-term.
The Benefits of the Blanket Mortgage
One of the most distinct benefits of the blanket mortgage is the ability to purchase multiple properties. Oftentimes, when investors take out individual loans, they reach a point where lenders will not give them another mortgage. It becomes too risky for the lender. With a blanket loan, you have the funds you need to purchase as many properties as you see fit.
Other benefits of this mortgage program include:
- Lower costs – Taking out individual loans for multiple properties means paying closing costs on each loan. This can really add up as closing costs can cost as much as 5% of the loan amount. When you take out one loan for multiple properties, you pay the closing costs one time.
- Easier payments – Making multiple mortgage payments can get confusing. Even if they all have the same due date, you still have to keep the lenders and addresses straight. It’s easy to get confused and miss a payment on one property or double pay another property without realizing it.
- Get the loan you need – The blanket mortgage is not a
traditional mortgage product. You’ll deal with a non-traditional lender, which means you may be able to customize the loan to fit your needs. As long as you are upfront with the lender about what you are trying to do and you have the credit and assets to back you up, you may find a willing lender.
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The Downside of the Blanket Mortgage
Of course, there are downsides to the blanket mortgage as well. Most notably, it may take a while to find a lender willing to give you a blanket loan. It’s not a traditional program, as we discussed above, so it will require some shopping around. Even if you do find a lender that offers the program, you have to be able to meet their specific requirements, which they set.
Other downsides include:
- Getting turned down is common – If you are just starting out in investment real estate, you may have to check with many lenders before you find one willing to take a chance. The risk of default is much higher on this type of loan, so lenders have to be very choosy.
- Your mortgage payment will be very large – Depending on how many properties you purchase with the financing, you will be writing a very large check each month. It may turn out to equal the same amount that several individual loans would cost, but defaulting on a mortgage of a sizeable amount can seriously harm your credit and reputation as a real estate investor.
- All properties are at risk of foreclosure – If you do default on the loan, you lose more than just one property; you lose all properties that make up the collateral for the blanket loan.
If you are in the market for a blanket mortgage, check with
portfolio lenders or subprime lenders. You want those banks that keep the loans on their own books. Any banks that sell to Fannie Mae, FHA, or the VA will not offer this type of loan. You have to think outside of the box and likely even shop for your mortgage online where you’ll find the widest assortment of lenders.
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