A blanket mortgage is a special type of real estate financing that can be helpful when someone wants to buy multiple properties at once. Developers, investors, and house flippers may find blanket loans beneficial.
Note: SoFi does not offer blanket mortgages at this time.
Here’s more about how they work and their pros and cons.
What Is a Blanket Mortgage?
A blanket loan is a single mortgage loan that uses more than one piece of residential or commercial real estate as collateral.
The borrower can sell one of the properties while keeping the rest under the loan. Then the mortgagor can sell a second property, a third one, and so forth while still keeping the financing intact for the loan’s entire term.
You may be able to negotiate a blanket mortgage that lets you buy, sell, or substitute properties with minimal angst.
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How Does a Blanket Mortgage Work?
A developer, for example, may find a large lot to subdivide into smaller ones, creating a new housing subdivision, under a blanket loan financing structure.
As general contractors or families buy the individual lot or lots they want to build on, those lots could be released from the developer’s blanket mortgage, with unsold lots remaining under the blanket loan.
As another example, someone who buys fixer-uppers, renovates them, and sells them for a profit may buy several properties of interest and finance them with a blanket mortgage. Each property that is refurbished and sold can be released from the blanket mortgage loan.
If a blanket mortgage comes with a release clause, the proceeds from a property the borrower sells can be used to buy another property.
Lenders can create their own terms, so it’s important to be clear about a loan’s parameters. They will want to know about each of the properties involved, their intended use, where they’re located, and their condition. If a housing development is being planned, the lender will want proof of the borrower’s experience.
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Pros and Cons of a Blanket Mortgage
Each of the different types of mortgages comes with pros and cons. That’s true of a blanket mortgage, too.
| Pros | Cons |
|---|---|
| Developers, investors, and the like can expand their portfolios in ways that can circumvent any limit on the number of mortgages that one borrower can take out. The borrower needs to close on just one loan, which can save them money on closing costs. | Lenders will require anywhere from 25% to 50% down. |
| Only one credit approval is involved, and fewer monthly payments need to be made. | The borrower may need to have significant assets and excellent credit to qualify. |
| If the loan is set up with a balloon structure, payments may be low during a predetermined time frame, perhaps interest only. | If the blanket mortgage is set up as a balloon loan, a large amount may be owed when the term ends. |
| The interest rate may be more attractive than separate loan rates, which can lead to lower monthly payments (and contribute to better cash flow). | If the borrower defaults on one property, the lender may attempt to foreclose on all properties covered by the mortgage. |
Recommended: Home Loan Help Center
Should You Consider a Blanket Mortgage?
Possibly. If you’re qualified and you want to buy multiple properties with one mortgage, selling them and releasing them from the loan as they are individually sold, then a blanket loan may make sense.
Blanket mortgages can be elusive. If a blanket loan seems like a good choice, you can inquire about one with banks that offer commercial loans or talk to a mortgage broker.
Any lender or broker you contact should be able to answer your mortgage questions.
The Takeaway
Blanket mortgages are a specialty type of loan used by developers, real estate investors, and house flippers when they want to put multiple properties under a single loan. Blanket loans have pros and cons. Qualifying for one isn’t for the faint of heart.
FAQ
What is an example of a blanket mortgage?
If someone wants to buy fixer-upper homes to rehab and resell, they may use a blanket loan to purchase several of them at once. As a home gets refurbished and sold, that property is released from the blanket loan while the other properties are still funded.
Is it hard to get a blanket mortgage?
Lenders will typically want a borrower to have sizable assets and excellent credit, and the down payment can range from 25% to 50%. So blanket loans are limited to more established borrowers with solid financials.
Who would most likely obtain a blanket mortgage?
Businesses may apply for a blanket loan to buy commercial property. Landlords, both commercial and residential, may also utilize this type of loan. So can construction companies and people who flip homes.
Is a blanket loan a good idea?
Under certain circumstances, a blanket loan can be a useful form of financing. When purchasing multiple properties with one loan, just one approval is needed. Closing costs may be lower. Interest rates and payments may be more attractive, too. That said, requirements to qualify for this type of loan can be significant, with down payments ranging from 25% to 50%.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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