Blanket Mortgage: How It Works & When To Get One
This article is part of a larger series on Business Financing.
A blanket mortgage allows a borrower to purchase or hold multiple properties under the same financing agreement. Properties held in a blanket loan can be sold without invoking the due-on-sale clause in the mortgage, which requires the loan to be paid in full when a property is sold. This allows you to use the proceeds from the sale to purchase more property.
A blanket loan is preferable to individual mortgages for multiproperty investors because it’s far easier to manage one payment than multiple mortgage payments. A lender will issue a partial mortgage release when a property is sold from a blanket mortgage, so long as the remaining property on the mortgage has enough value to cover the remaining loan amount.
For borrowers looking to build a subdivision of homes, a blanket mortgage is an excellent choice. The land can be financed in a blanket loan, then parcels are released and sold as the houses are built. This means the borrower doesn’t have to apply for a new mortgage for each separate property.
Typically, blanket mortgages are portfolio loans because the loan amounts are too high or too many properties are being financed to sell on the secondary market. Typically, loans sold on the secondary market are limited to 10 properties per loan.
CoreVest is an excellent lender for blanket mortgages. CoreVest offers terms of five, seven, or 10 years, with up to a 75% LTV ratio. Loans can go up to $100 million or even higher on rare occasions. CoreVest has an online application on its website and a chatbot to answer questions. Visit the company’s website for more information.
Pros and Cons of Blanket Mortgages
| PROS | CONS |
|---|---|
| Easier to manage | Risk of default on multiple properties |
| Fewer loan fees | May be hard to find |
| One set of terms and one payment for all properties | Larger payments |
| Can cover an unlimited number of properties | Harder to qualify for the loan |
Some of the many benefits of using a blanket mortgage include:
- Easier to manage: Because you’re only dealing with one payment instead of separate payments on each property, it makes it easier to manage the loan.
- Fewer loan fees: Individual mortgages on multiple properties would have separate closing costs for each one. One loan covering all properties only has one set of fees and one set of closing costs.
- One set of terms and one payment for all properties: Multiple loans have multiple payments and have different interest rates for each loan. With a blanket mortgage, everything is covered in one payment at one interest rate.
- Can cover an unlimited number of properties: With most blanket mortgages being portfolio loans, there’s no federal limit to the number of properties held on the loan. This makes blanket loans ideal for large subdivision projects.
Conversely, there are drawbacks to using a blanket mortgage, including:
- Risk of default on multiple properties: With a loan on a single property, only that property is at risk if the loan goes into foreclosure. With a blanket mortgage, you run the risk of losing a whole group of properties if the loan goes into default.
- May be hard to find: Not every bank offers blanket mortgages. Some large banks only sell loans to the secondary market, which makes finding a blanket loan very difficult.
- Larger payments: Because the loan is larger to cover multiple properties, the loan payment is significantly larger as well. Be sure the larger payment fits into your business budget before considering a blanket loan.
- Harder to qualify for a blanket mortgage: Because the loan is large, the risk to the lender is higher. That means the qualifications are more stringent.
Blanket Mortgage Rates, Terms & Qualifications
Blanket Mortgage Loan Sizes | $100,000 to $100 million |
|---|---|
Loan Term | Two to 30 years |
Common Amortization Periods | 15, 20 or 30 years |
Typical Balloon Payments | Three, five, 10 or 15 years |
As low as 4% | |
Typical Loan-to-Value (LTV) Ratio | 50% to 75% |
Typical Down Payment Required | 25% to 50% |
Cash Reserve Requirements | Typically at least six months |
In addition to the terms and qualifications listed above, there are other factors lenders will look for in a borrower before approving a blanket mortgage:
- Credit strength of the borrower: Your individual credit and income will likely be considered when applying for a blanket mortgage.
- Credit strength of the business: The income and credit history of the company will also be considered. The business will likely need a debt service coverage ratio (DSCR) of at least 1.25x.
- Industry experience: This is especially important if you’ll be building a large housing development. There’s considerable risk to the lender in this scenario, so they’re going to want to know if you have prior experience.
- Strength of the property: The lender will want to know how many properties are on the loan, the type of properties covered, the intended use of the properties, and the location and condition of existing properties.
- Net operating income: If rental properties are included in the loan, the lender will want to know the net income after vacancy and operating expenses are subtracted from gross income.
What You Need to Apply
The process for applying for a blanket loan is similar to getting any small business loan. Before applying for investment property financing, you should gather as much of the following information as you have available and be prepared to present it to a potential lender.
Some of the listed information below might not be available to you at the time of application. The lender will acquire some of the information through pulled credit reports and appraisals.
- Personal financial documents: These will include credit reports, personal tax returns, bank statements, and professional resumes of principal borrowers.
- Business financial documents: Lenders will need business credit reports, business tax returns, and business bank statements to show the credit and income strength of the business and required cash reserves (if required).
- Required property details: If you have the information, include the property addresses, property details, photographs, and the date purchased if you have purchased the property already.
- Other details on value and financing: If you know the property purchase price (or asking price), include that information. Lenders will also need to know the current fair market value, the cost of any potential renovations, the amount of any existing financing, and your business plan and project proposal.
- Property finances: If you have access to the information, any property financing information, including rent roll, vacancy rates, property expenses, fees, and the net operating income of the property.
Bottom Line
Blanket mortgages are an excellent way for you to finance multiple properties under the same mortgage loan. A blanket loan makes managing financing on multiple properties far easier than having individual loans on each. It also allows you to purchase new properties without applying for new financing.
However, blanket mortgages can be complicated and bring greater risk to both the borrower and the lender. The process of applying for a blanket mortgage can require more preparation on your part than an individual loan on one property. Use our guide to prepare your documents and plans before proceeding with a blanket mortgage application.
