Blanket Mortgage Fundamentals: Rates, Terms, Qualifications and More

A blanket mortgage enables real estate investors to buy, hold, and sell multiple properties under a single financing arrangement which is more efficient than having multiple individual mortgages. With a blanket loan, properties can be sold without triggering the “due on sale” which allows proceeds from the sale to be used to purchase more property.

If you need $500k or more in blanket financing for 5 or more properties consider CoreVest. They offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. Set up a free consultation to get pre-qualified.

Visit CoreVest

Blanket Mortgage Fundamentals

As an investor, blanket mortgages are useful to you either if you already own multiple properties, or if you are considering multiple-property deals. In either case, with multiple properties, and multiple individual mortgages you face a lot of administrative and possibly financial issues.

Picture owning a dozen rental properties, each with its own mortgage. Each month, you are responsible for making 12 individual payments to multiple banks, all the while trying to staying cognizant of the various interest rates, and terms, and requirements. The more properties you have, the more complex the juggling becomes.

Now, picture having all those properties enveloped by a single large mortgage. You make one payment to a single bank with a set rate and terms. That’s the blanket mortgage in a nutshell.

There are other distinct benefits to blanket mortgages including cost savings as compared to individual mortgages, providing investors with more financing than they would otherwise have access to, and the ability to sell properties while leaving the financing intact. Each will be discussed in this article.

Who Blanket Mortgages Are Right For

Blanket loans are useful for either long-term investors or builders and developers, and each can benefit in a unique way. Investors gain from the efficiency inherent in reduced loan administration while builders/developers can overcome a very typical financing challenge unique to them.

Multi-Property Investors

As an investor’s portfolio grows, blanket mortgages become more valuable. The greater the number of units, the more cumbersome it is to coordinate paying all the mortgages and to stay on top of lenders’ requirements. Since blanket mortgages consolidate many into few, it reduces the volume of lending-related paperwork and both monthly and annual tasks an investor needs to handle.

Blanket mortgages also offer a way to overcome the roadblock that most private investors face – that is, the limit on the number of mortgages a person can carry at one time. Because a blanket mortgage reduces the number of loans outstanding, it opens the investor to pursue additional deal financing.

There’s also something called a ‘release’ clause that allows individual properties to be sold without affecting the underlying blanket loan. That makes it possible to profit from existing units without having to necessarily pay off the underlying loan. Simultaneously, newly acquired investments can be added into the blanket which means financing may be already existent and waiting.

Builders & Developers

Builders and developers have a specific need for blanket loans related to releasing liens on developer’s land. Developers face a dilemma; they acquire land to build on, but typically, banks will not provide a construction loan unless the lot is free and clear of mortgages. Lenders’ rationale is, if the developer defaults on the lot loan, then the lender who’s fronted the money for the construction is at risk.

Enter the ‘release’ clause in a blanket mortgage. Let’s say a developer obtained a blanket loan on 10 buildable lots. If the loan is properly structured, the borrower can request a lot be released from the lien. So, assuming there’s enough equity and the lender agrees to the release, it effectively makes the lot free and clear. That means the builder can pursue the construction loan to build a house on the property.

Blanket Mortgages vs. Traditional Mortgages

Blanket loans do not work for every situation, and there are advantages and disadvantages compared to traditional mortgages. Here are the main benefits and limitations.

Benefits of Blanket Mortgages

Blanket mortgages are preferable to traditional mortgages in many ways. The two clearest benefits come from reduced costs and reduced bookkeeping load. Additional benefits include no limitations to the number of properties which can be included in a blanket loan, and these customized, typically large loans enhance borrower clout for larger future deals.

Reduced Costs

If you obtain individual mortgages for multiple properties, you incur the costs of each. That means multiple loan origination, points, and application fees. Incurring multiple costs would apply whether you are getting purchase money or refinancing. With a blanket mortgage, you only incur one set of expenses – a single loan origination, one set of points, and one application fee.

Reduced Bookkeeping

If you’ve ever dealt with multiple loans, particularly if they are from multiple lenders, you know what it’s like to juggle the details. Imagine being an investor going from 6 units to 60, trying to coordinate payment and lender demands for 60 individual mortgages. Now, reimagine the same scenario, but with 10 blanket mortgages covering 6 properties each. Ten mortgages are much more comparable to the bookkeeping load you are already familiar with.

No Limitations on the Number of Properties

As a real estate investor, you are customarily capped on the number of mortgages you can obtain. Depending on the situation, this limit is usually 7-10 conventional or government-insured mortgages. Unless you form multiple business entities and buy a handful of properties in each, it curtails how large your investment portfolio can grow.

Blanket mortgages reduce the number of loans on the books. Instead of having, say, 6 mortgages, you might consolidate all those units under one blanket mortgage, freeing up the potential to obtain 5 additional mortgages.

Additional Borrowing Clout

All other things being equal, a properly handled $500,000 mortgage will provide better financial clout than handling five $100,000 mortgages. To illustrate, if you want to obtain a loan for a $400,000 project, it’s much more likely if you’ve been responsible for a $500,000 blanket mortgage than if the maximum loan you’ve handled was $100,000, even if there were five of them.

Customizable Loans

Traditional lending tends to be somewhat cookie cutter. Lenders look for secure, understandable investments that can be easily underwritten. Unusual investing situations tend to make traditional mortgage lenders squeamish and it’s hard to get approved. That’s why traditional mortgages are only written on a single property.

Blanket mortgages, on the other hand, are not traditional lending products. They are handled by lenders familiar with unique lending situations. So, they can be custom tailored (and approved) based as much on the financial potential of the holdings and your track record as an investor or developer, and less on a cookie-cutter approval process.

Lenders such as Corevestunderstand how to interpret and approve these unique blanket loans.

Disadvantages of Blanket Mortgages

Despite all of the advantages of blanket loans, they are not without their faults. They are harder to obtain than traditional mortgages. They are riskier to you in the sense that larger payments can be harder to make than multiple small ones, and default or foreclosure can be dire in comparison to loans merely covering single properties.

Blanket Mortgages Can Be Hard to Obtain

Because blanket loans are large and specialized loans, lenders for them are harder to locate; and, getting approved usually requires very rigorous scrutiny of you as an investor or developer along with financial realities of the deal being evaluated.

Be prepared to supply a healthy amount of paperwork and supporting documentation on yourself, any other principals involved, the business entity, and the finances of the deal itself. Also be prepared to be turned down, even if you think you’ve prepared a convincing loan package. You might need to approach multiple lenders before being approved.

Blanket Mortgages Have Larger Payments

Because a sole loan encompasses the combined value of multiple underlying holdings, your mortgage payment is going to be large. Granted, whether you are paying on six $100,000 notes or a single $600,000 mortgage your overall obligation is the same. But, there is some manifest “wiggle room” tending to, say, six individual $800 payments than there is with one $4,800 one.

Blanket Mortgages Have Default Issues

Related to the above is what happens if you default on a loan. With individual mortgages, if you should fall behind on payments perhaps it’s only on one loan. Thus, only one property is at risk of foreclosure. With a blanket mortgage, if you slip into default, it’s for the entire loan and all the holdings covered by that loan are in jeopardy.

Where to Get a Blanket Mortgage

Because blanket mortgages are non-traditional lending products, it’s a bit harder to find lenders who deal with them. Options include traditional lending institutions, portfolio lenders, and online lenders:

Lending Institutions Offering Blanket Mortgages

Normally lending institutions offering blanket loans will be smaller local banks since they understand the needs of local builders and developers. These include:

• Traditional Banks – some conventional banks and savings and loans still offer blanket mortgages. The more in-tune a local bank is with local developers and real estate investors, the more likely they’ll provide a blanket loan product.
• Commercial Banks – since local developers and builders often turn to commercial lenders for their projects, commercial banks stay on top of their borrowing needs. Blanket loans are often a lending option made available to that sector of customers.

Portfolio Lenders Offering Blanket Loans

Since blanket loans lean towards being asset-based and require atypical underwriting, a large segment of blanket lending is offered by private lenders. These lenders have in-house underwriting processes very different from conventional or government-backed lenders.

Portfolio lenders usually keep their loans in-house rather than sell them on the secondary market. This gives them the flexibility to approve situations that more institutional lenders would never permit.

Online Lending Institutions Offering Blanket Loans

Online lending options are becoming more plentiful each year. Many of the more notable online lenders are private or portfolio lenders – meaning they can be much more flexible in what they’ll consider and what they’ll approve. Many of them specialize in working with real estate investors; so, they “speak the language” of real estate investment and understand what you are trying to accomplish with a blanket loan.

Keep in mind that more creative and flexible lending typically equates to higher cost. So, with many online lenders, be prepared to see higher interest rates and points than you’ll find with a traditional lender.

If you are seeking a blanket mortgage for 5 or more rental properties (1-20 units) and need $500K or more in blanket financing, consider CoreVest. They offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. They offer free, no-obligation consultations to investors looking for flexible financing solutions.

Visit CoreVest

Blanket Mortgage Rates & Terms

Because blanket mortgages are unique to each situation, there is no common thread of specifications like you’d find with traditional mortgages. As an investor, you’ll need to pore over the details of loan costs, loan size, repayment terms, loan-to-value, and reserves during your application process.

Typical Blanket Mortgage Specifications

Blanket Mortgage Loan Sizes and Repayment Terms

The minimum loan amount for a blanket mortgage will normally be around $100,000. The maximum loan can exceed $50,000,000; however, these larger blanket mortgages will be the domain of borrowers with the best long-term track records and profitability, and who are holding properties like large apartment complexes.

In many cases, blanket mortgages will have shorter repayment terms than traditional home mortgages. Though they can have 15 – 30-year amortization schedules, blanket mortgages will often have a balloon payment, requiring repayment or refinancing of the loan after 3, 5, 10 or 15 years.

Blanket Mortgage Fees and Costs

Because blanket mortgages are customized, costs vary with each loan. It’s very much a case-by-case situation with respect to interest rates, fees, and points. Moreover, the numbers can vary widely from one lender to the next and even one loan placement to the next with a single provider.

Blanket Mortgage Loan-to-Value (LTV) Ratio

Blanket mortgages are generally low leverage, with maximum loan-to-value (LTV) topping out around 75%. So, if you are trying to craft a blanket loan for five properties worth $1 million, the maximum loan you’ll likely obtain is for $750,000.

Keep in mind, that part of the purpose of the large equity cushion is to allow the possible release of a property. Even with one property removed from the blanket loan, the lender wants to be sure there’s sufficient remaining collateral. So, while having a fairly low LTV can seem problematic at the time of borrowing, it actually becomes useful later if you want to sell a property outright or release a lot on which to build.

Cash Reserves

When you apply for a blanket mortgage, most lenders will require you to have a certain amount of cash reserves available. Blanket mortgage lenders typically require reserves sufficient to cover at least six months of mortgage payments. So, if your blanket mortgage has a payment of $6,000 per month, you’ll need to have $36,000 in cash reserves.

In many cases, the reserve requirement is based on interest only. So, if the interest portion of the above loan is only $4,800 per month, and assuming a requirement for 6 months of cash reserves, you would need only $28,800.

Blanket Loan Qualifications

Qualifying for a blanket mortgage is vastly different from getting a mortgage on a personal residence. That’s because the tend to be mainly asset-based, so their value and cash flow take precedence over your personal finances. Still, expect your personal finances to be evaluated.

Here is a list of common blanket mortgage qualifications:

1. Strength of the Borrowers

When a lender looks at the borrowers, they want to determine how capable they are likely to be managing a large blanket loan. The areas of concern break down to: creditworthiness of each principal involved; the financial track record of the business entity; and, the industry experience the principals bring to the table.

Credit of the Borrowers

Whether the borrower is an individual or a group of people, their creditworthiness will be considered. This includes looking at credit scores, repayment history, income, total debt, and debt to income ratio.

While blanket mortgages are usually asset-based, and much of the emphasis will be on the financial realities of the properties, be advised that, because of the loan amounts involved, creditworthiness of the borrower(s) is still a significant consideration.

Credit of the Business Entity

Since it’s likely that a borrower for a blanket loan runs a business entity such as an LLC, the track record, and creditworthiness of the entity will be also be considered. Just as with personal credit, this includes assessing outstanding credit, total debt, debt to income, and repayment history. Generally, lenders will want to see a personal credit score above 680. Check your credit score here for free.

Check Your Credit Score for Free

Industry Experience

Blanket mortgage lenders will also consider the industry track record of the investor or builder/developer. In most cases, this will include any principals involved in the deal. Each lender will vary in terms of minimum requirements for a borrower’s industry experience but expect the figure to begin at 2 years.

The exact amount and nature of experience required will be a function of the amount you’re borrowing and complexity of the project. The mortgage provider will look specifically at relevant experience as a builder, rehabber, or owner of a portfolio of investment properties. Lenders will typically seek documentation proving that you have successfully handled similar projects or have successfully managed rental portfolios.

2. Strength of the Properties

Mentioned above, blanket lenders will give special attention to the value and financial performance of the subject properties. Here are the most common areas of evaluation related to them.

Number of Properties Covered by the Loan

Blanket lenders will have a preferred range of properties they’ll cover. Some lenders will favor a smaller number of properties, feeling that fewer units provides greater overall ability to repay. Others take the opposite approach, perceiving greater security in a greater volume of collateral.

Questioning the lender about their preferential number of properties in a blanket loan should be an early part of your discussion with them.

Type of Properties Covered by the Blanket Loan

Despite blanket loans being flexible tools, even blanket lenders like to see portfolios they can understand. The more your property holdings are understandable, the more likely you are to be approved.

So, you may find a lender that prefers properties be of a similar type (ie. all single-family residential units). Others may prefer holdings all be in a single state. Fortunately, some are more adventurous and will accept portfolios of mixed property types or geographically dispersed.

Term of the Blanket Loan

Whether the blanket loan is needed short-term or long-term is yet another factor lenders will take into consideration. Generally, lenders prefer shorter-term loans (perhaps under 10 years) because they are not as exposed as with a longer-term loan.

Length of Ownership

The length of time you’ve owned a property will play a large role in the approval process. If you’ve owned the properties for months – better yet years – lenders will be more comfortable than if you’ve only owned them for weeks.

Existing Loans and Seasoning

If there is any existing financing on the property, the longer you’ve had it (called seasoning) the better. The more seasoning of existing financing, the greater track record of payments exist.

For example, if you are refinancing, lenders will want to see a track record of paying on the existing loans before considering a blanket to replace them. Or, if any of the existing financing is going to stay on the property (for an example, if you are seeking a blanket first mortgage, but certain second mortgages or credit lines will remain), lenders will want to see a solid history on those.

Net Operating Income

If you are seeking a blanket loan on a rental portfolio, a primary figure that will be examined is net operating income. This is a common calculation that looks at net rental income after subtracting all operating expenses (including vacancy) from the gross rent. So:

Net Operating Income = Gross Income – (Vacancy + Operating Expenses)

Net operating income is the first figure that points to whether the income generated will cover the payments on the loan.

Debt Service Coverage

Lenders will use the net operating income to compute the debt service coverage ratio (DSCR) on the property, which is a primary computation in determining how well the income from the properties will cover the debt servicing (paying the principal and interest payments). The basic formula is:

Debt Service Coverage Ratio = Net Operating Income / Debt Service

A figure greater than 1 means that the deal can cover its debt service. A figure less than 1 means it can’t, and it will probably be declined.

Application Process & Necessary Documents for a Blanket Mortgage

Applying for a blanket mortgage is not unlike one for a single property, just more rigorous. Here’s what to expect in terms of requested documentation.

If you are seeking a blanket mortgage for 5 or more rental properties (1-20 units) and need $500K or more in blanket financing, consider CoreVest. They offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. They offer free, no-obligation consultations to investors looking for flexible financing solutions.

Visit CoreVest

Personal Financial Documents

Even if If you are applying as a business entity (ie. LLC, partnership, or corporation) you may be required to personally guarantee the loan, so personal documentation will be sought. The litany of personal documents is pretty standard, and be prepared to supply it for all the principals involved:

• Credit Reports – this will certainly be required if you are applying as an individual or sole proprietorship. Partners and principals in corporations may also be expected to provide personal credit reports.

If you want to check your credit score and get a business credit summary, you can do so here for free.

• Personal Tax Returns – similar to credit reports, these will be expected if you are applying as an individual or sole proprietorship and all principals may be expected to supply them if there’s a business entity. Normally, 2-3 years of tax returns are expected.
• Bank Statements – if applying as an individual or sole proprietor, these will be required to verify cash reserves are available.
• Professional Resumes of Principals – these may or may not be required, but serve to validate the professional experience and track record of the people involved in the project.

Business Financial Documents

• Business Credit Reports – If an entity is involved, a credit report will be pulled for the business.
• Business Tax Returns – Tax returns for any business entity will be required in addition to any personal returns. Lenders will normally look for 2-3 years of business returns.
• Business Bank Statements – similar to personal bank statements, lenders will look for verification of reserves via bank statements if an entity is ultimately paying the loan.

Required Property Details

In the application process, you will be expected to supply a substantial amount of information regarding the properties covered in the loan.

• Property Addresses – each property address should be provided.
• Property Details for Each Property – note each property type (ie. single family, apartment, commercial, etc). Describe square footage, number of bedrooms, baths, etc.
• Photographs – Provide exterior and interior photographs.
• Date Purchased – if the properties have already been purchased, list the purchase date to show “seasoning” of ownership.

Necessary Details on Value and Financing

Also expected will be financial details of the properties covered by the loan.

• Purchase Price – list the purchase price of each property and whether already acquired or yet to be purchased.
• Current Fair Market Value – provide appraisals or comparative market analysis to show property values. Lenders will still likely order their own appraisals.
• Cost of Any Renovations – if significant renovations have been completed, note them and their value. If renovations are needed, provide project budgets for their completion.
• Amount of Any Existing Financing – note the remaining balance, payments, and lender for any existing financing to be paid off by the blanket loan. Note when it was placed on the property (to show seasoning). Discuss any existing financing to remain after the blanket loan has been placed.
• Business Plan/Project Proposal – Typically, this will be required only of a builder or developer. But, having at least a brief project proposal and purpose for the blanket loan is advisable.

Property Finances Required

In addition to property details, the following information regarding the properties’ financial performance will be sought by the lender. Ideally, at least 2 years of information should be supplied:

• Gross Rent Roll – gross possible rent should be supplied (not including vacancy)
• Vacancy Rates – detail vacancy rates for each building
• Property Expenses – taxes, insurance, maintenance/repair, HOA fees, common charges, utilities, etc. should be fully detailed.
• Net Income – Provide net operating income after allowing for vacancies and subtracting all expenses

Things to Know About Blanket Mortgages

Blanket mortgages have certain important features. The most important is the release clause which allows collateral to be sold off without unduly interfering with the loan. Blanket loans are more likely to be recourse loans than traditional mortgages. Finally, there are often constraints placed on commonality of buildings or geographic consistency in the underlying portfolios.

Release Clauses in a Blanket Mortgage

The release clause is what allows real estate investors or developers to sell one property covered by the blanket mortgage without having to pay off the entire blanket mortgage. This is one of defining characteristics of a blanket loan.

While you won’t have to pay off the entire mortgage, you will have to either replace sold properties with new ones within a certain agreed upon time frame or reduce the loan amount to ensure the LTV remains at or below specified levels.

Keep in mind, every time you sell property covered by the blanket mortgage, you reduce the collateral backing the loan. The lender will want to see that the collateral is replaced or the LTV otherwise reduced so that the loan is not becoming financially riskier for the lender.

Recourse Versus Non-Recourse Blanket Mortgages

Recourse is when a lender has the legal right to pursue other assets you own apart from the properties that are pledged as collateral should you default on a loan. Moreso with blanket loans than traditional mortgages, lenders will expect the loan to be a recourse one. It will require that you and/or other principals involved provide a personal guarantee on the mortgage.

In a non-recourse arrangement, the lender can only pursue the properties that are specifically pledged as collateral. No personal guarantee will be required. Keep in mind, however, that you have pledged several properties as collateral even with a non-recourse loan.

If you intend to pursue a non-recourse situation, you will need a solid history and a good track record with other lenders. Or, you can go after a blanket with a very low LTV, since the lender will not be as financially exposed if you default.

Like-Kind Property Limitations

Blanket mortgages can be used to finance virtually any kind of property from residential to multi-family, to vacant land. In many cases, lenders will require that property covered by the blanket mortgage be of “like kind.” That means that a lender would be looking for a portfolio of, say, all residential units – not a portfolio of mixed residential buildings, apartments, and commercial units.

Single State Limitations

With blanket mortgages, sometimes the lender will expect the collection of properties to be located all within the same geographic area or at least the same state.

Bottom Line

Blanket mortgages enable investors, builders, and developers to place multiple properties under a single loan. They provide greater efficiency compared to having multiple mortgages. If the loan contains a release clause, properties can be sold while the existing financing stays intact. Blanket mortgages are usually asset-based; application and qualification is more involved than with traditional mortgages.

If you are seeking a blanket mortgage for 5 or more rental properties (1-20 units) and need $500K or more in blanket financing, consider CoreVest. They offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. They offer free, no-obligation consultations to investors looking for flexible financing solutions.

Visit CoreVest