A blanket mortgage (or blanket loan) allows a borrower to finance multiple properties under one financial agreement. It streamlines the lending process and saves time and money by cutting down on paperwork and various fees associated with applying for several individual mortgages. Seasoned real estate investors use it to manage both commercial and residential properties in a single payment.
Key Takeaways:
- Blanket mortgages are a more complex transaction than standard mortgages, however can be useful to keep track of multiple properties at once.
- Balloon payments can be a requirement of a blanket mortgage and require higher down payments.
- A blanket mortgage can be considered a higher-risk financing option in the event of default since multiple properties are used to secure one loan.
Who a Blanket Mortgage Is Right For
Blanket mortgages typically aren’t applicable for borrowers financing a single mortgage or for first-time investors, as they likely lack experience and resources. Since it can be a rather complicated transaction, it may be best for those who are:
- Experienced real estate investors: Blanket mortgages are best suited for investors who already have experience with getting investment property financing and have an existing real estate investment portfolio.
- Looking to consolidate an existing portfolio: You can use a blanket mortgage to essentially refinance a real estate portfolio and manage your debt obligations with a singular monthly payment.
- Fix-and-flip investors: For experienced fix-and-flip investors who often need quick access to financing, a blanket mortgage provides opportunities to acquire multiple properties and repair them while being able to manage them under one loan agreement.
- Real estate developers: Developers who have plans to purchase land and construct a variety of buildings can utilize a blanket mortgage to finance the project under a singular agreement and avoid extra paperwork and closing costs on individual units.
How a Blanket Mortgage Works
A blanket mortgage is a financial agreement that finances multiple properties under one loan, with the included assets typically serving as collateral. Individual properties included in the agreement can be sold and refinanced without retiring the entire mortgage (aka the release clause). This can occur without invoking the standard due-on-sale clause in typical mortgages that require full repayment upon property sale.
Utilizing a blanket loan can be advantageous since one loan covers all the property and payment details. However, this simplicity comes at a price—it requires higher down payments and closing costs than standard mortgages. Depending on the agreement, you may be subject to a balloon payment at the end of the loan term, as opposed to monthly principal and interest payments associated with standard mortgages.
Rates, Terms & Qualifications of Blanket Mortgages
Maximum Loan Amount | $100,000 to $100 million |
|---|---|
Repayment Term | Up to 30 years |
Interest Rates | Starts between 4% and 11% |
Common Amortization Periods | 15, 20, or 30 years |
Standard Balloon Payments | 3, 5, 10, or 15 years |
Maximum LTV Ratio | Up to 80% |
Down Payment | Typically 25% and up |
Rates, terms, and qualifications of blanket mortgages can vary depending on the lender you choose. There are a variety of factors that are taken into consideration when determining eligibility for a blanket mortgage, including your and your business’s creditworthiness, real estate investment experience, the strength of the properties being financed, and operating income.
- Creditworthiness: A lender will want to see a strong credit history inclusive of both your personal and business financials.
- Industry experience: Blanket mortgages don’t come without risk, so lenders will want to ensure you have prior investment experience that is suitable for them to be comfortable issuing financing.
- Strength of properties: Since multiple properties will be included in the loan, you’ll likely have to provide details pertaining to the property type, conditions, and their intended use.
- Net operating income: To further mitigate risk, lenders will often want to know the net income after vacancy and operating expenses are subtracted from the gross income of a rental property.
To help your chances of approval, check out our guide on how to get a small business loan. It will walk you through the lending application process and offer insight on how to get financing fit for your business needs.
Pros and Cons of Blanket Mortgages
| PROS | CONS |
|---|---|
| May offer favorable interest rates since all properties are tied to one loan instead of individual financing | Can require higher down payments and various closing fees in comparison to standard mortgages |
| Can simplify the application process since you only have to apply for one loan instead of multiple | Can be considered higher risk in the event of default which could result in the loss of multiple properties |
| Can make for an easier repayment schedule to have all property payments set up in one loan | May have a balloon payment at the end of the loan term instead of monthly payments |
How to Get a Blanket Mortgage
If you think a blanket mortgage may suit your real estate investment needs, there are a few applicable steps beyond making sure that you qualify. Here are the steps you can take to obtain financing:
Before proceeding with a blanket loan, make sure this is the best financing option for your real estate investment, and be sure to consider any alternatives. Keep in mind, it’s better suited for investors who are in possession of multiple properties already and have experience financing them.
You can obtain a blanket loan from a variety of commercial lenders, including banking institutions, mortgage brokers, or other online lenders. Blanket loans aren’t as common as traditional mortgages, so you may have to shop around a bit to find a lender that offers this type of loan. Either way, be sure to do your due diligence and find one that supports your business needs, offers good customer service, and has favorable rates and terms.
After you have researched a variety of lenders and found ones suitable to your investment needs, you’ll want to review their eligibility criteria and make sure you meet their minimum qualification requirements. Such criteria will vary per lender, but will generally include factors such as your investment experience, credit score, property type and condition, and net operating income.
Once you’ve reviewed the qualification requirements set by the lenders you’re interested in working with and determined whether or not you’re eligible for financing, you should then compare interest rates and repayment terms. When shopping around for a lender, you’ll want to factor in your budget and business needs before proceeding with an application.
When preparing your application, you’ll likely need to submit supplemental documents such as personal and business tax returns, credit reports, property valuations, rent rolls, and any other documents requested by the lender. After submitting your application, expect your approval status within a few days to weeks. If approved, the lender begins the underwriting and disbursement process which can take up to a few weeks.
Alternatives to a Blanket Mortgage
In the instance you don’t qualify for a blanket mortgage, are looking to finance a single property, or are simply exploring all of your financing options, here are some alternatives to help finance a real estate investment:
- Commercial real estate loans: There are a variety of commercial real estate loans that can be used to finance a real estate investment. Depending on the property type, there are different loan programs available that offer varying rates, terms, and qualifications. To learn more, you can read our guide on the best commercial loan rates.
- Business line of credit: Depending on the type of real estate investment you’re making, you may be able to use a business line of credit to finance the purchase or repair of a property. As a revolving credit facility, you can draw funds on an as-needed basis, and repay the balance over time.
This may be a solid option if your project can be financed within the loan limit since there are limited restrictions on how you can utilize funds. You can read our guide on business lines of credit to learn more.
- Home Equity Line of Credit (HELOC): Similar to a business line of credit, this may be an option for borrowers with limited resources who don’t qualify for business loans. Based on the value of your personal residence, a HELOC allows you flexible access to funds that can be drawn upon and repaid over time.
While it typically offers lower loan amounts compared to business loans, it’s available to qualified borrowers who own a home and have good personal credit. You can learn more about its uses by reading our guide on how to use a HELOC to fund your business.
If you’re searching for a commercial real estate lender, RCN Capital offers various loan programs tailored to your real estate investment financing needs. You can learn more by visiting its website and submitting an application.
Frequently Asked Questions (FAQs)
Depending on your experience as a real estate investor, blanket mortgages can be a good option for seasoned investors who are looking to simplify their mortgage transactions of multiple properties. It can simplify the application process, lessen the amount of paperwork, and make for an easier repayment schedule to house multiple properties under one blanket loan.
It can be difficult to get a blanket loan if you don’t have prior experience with such transactions. That said, qualifications will vary per lender. Generally, you’ll need to have a strong investment track record, along with a strong credit history and income.
Blanket mortgages are most commonly used by real estate investors who are acquiring, refinancing, repairing, or constructing more than one property. It’s not applicable to single mortgages or investors with limited experience.
Bottom Line
Using a blanket mortgage to finance multiple properties at once can be a great financing solution for experienced real estate investors. Rather than facilitating a single mortgage for each property, blanket loans can allow a borrower to manage a portfolio of properties under one loan agreement. This can make applications and repayment a streamlined process, and simplify the transaction as a whole.
