What Is a Blanket Mortgage?
The term blanket mortgage refers to a single mortgage that covers two or more pieces of real estate. The real estate is held together as collateral on the mortgage, but the individual pieces of the real estate may be sold without retiring the entire mortgage.
Blanket mortgages make it easier to get financing for multiple properties rather than having to take out numerous mortgages.
Key Takeaways
- A blanket mortgage is a single mortgage that covers two or more pieces of real estate.
- The real estate is held together as collateral, but the individual properties may be sold without retiring the entire mortgage.
- Blanket mortgages are commonly used by developers, real estate investors, and flippers.
- A primary benefit to a blanket mortgage is that it allows the borrower to have more cash on hand—for example, a property owner can save on costs associated with applying for and closing on multiple mortgages.
- Pitfalls to blanket mortgages include higher average costs than a traditional mortgage.
Who Are Blanket Mortgages For?
A blanket mortgage is a great alternative that can be used to finance the purchase of multiple properties—especially for developers, real estate investors, and flippers. Blanket mortgages, which are also referred to as blanket loans, are typically taken out to cover the costs of purchasing and developing land that borrowers plan to subdivide into individual lots. In many cases, borrowers acquire properties within a large purchase that they intend to sell in individual parts.
For example, flippers may seek blanket mortgages as a way to act quickly and take advantage of opportunities they see in the market. If the investor identifies multiple properties they want to acquire, refurbish, and put back on the market, a blanket mortgage could offer more leeway to make such actions more possible.
The clauses of such a mortgage may make it feasible to resell the properties as new buyers come forward individually. Depending on the terms of the blanket mortgage, it may or may not be necessary to refinance the loan when separate properties are sold.
Businesses with multiple locations they wish to own and operate out of may also seek blanket mortgages. This could apply to real estate developers who invest in commercial or residential property, such as apartment buildings or multifamily homes.
Most blanket mortgages come with a release clause. This clause frees up the borrower from the portion of the loan that's already been paid for. So when the borrower sells a piece of property covered under the loan, they can use these funds to purchase another property.
This is common for developers who develop land and build and sell new homes. Once the homes are sold to the public, the developers can use the money to purchase new plots of land rather than pay down the loan.
Blanket mortgages come with release clauses that allow them to sell properties and use the funds to purchase new ones rather than pay off the loan.
Advantages and Disadvantages of a Blanket Mortgage
Advantages of Blanket Mortgages
One of the primary benefits of taking out a blanket mortgage is that it allows the borrower to have more cash on hand. For instance, a property owner can save on various costs associated with applying for and closing on multiple mortgages. The property owner would only need to pay one set of fees for the blanket mortgage rather than separate fees on each property.
The aggregate blanket mortgage may also take advantage of better interest rates or simply be negotiated to offer more favorable terms than having to pay separately negotiated loans. This could free up more capital if it reduces the size of monthly payments, which in turn could offer them more resources to purchase more property.
Disadvantages of Blanket Mortgages
But there are also pitfalls to this kind of financing. For instance, the costs tend to be higher than a traditional mortgage. Since the loan amount may be higher—because of the number of properties involved—the lender may require a higher down payment to secure financing.
The terms of the loan also tend to be different from traditional mortgage loans. Lenders may require the borrower to make a balloon payment. That is, they may have to pay off the entire loan within a certain period of time.
If the owner defaults on one property, the impact may not just cover that single property.In fact, it may trigger a situation that allows the lender to seek control of all of the entire set of properties covered by the mortgage.
FAQs
A blanket mortgage helps streamline the process of buying multiple properties at once. Experienced real estate investors or developers often use blanket mortgages in the commercial and residential real estate arenas. A blanket mortgage can require a high down payment, more closing costs and a balloon payment.
What is the meaning of blanket mortgage? ›
A blanket mortgage is a single mortgage that covers two or more pieces of real estate. The real estate is held together as collateral, but the individual properties may be sold without retiring the entire mortgage. Blanket mortgages are commonly used by developers, real estate investors, and flippers.
What is a blanket mortgage in real estate example? ›
A real estate developer purchases 100 acres of land to build a residential community with one house per acre. They use a blanket loan to purchase the land from multiple sellers. As they build, they begin selling the homes to individual families. With each home sold, they pay off a portion of the loan.
What happens when your home buyer purchases a home where a blanket mortgage is in place? ›
What happens when your home buyer purchases a home where a blanket mortgage is in place? The person buying the home obtains a new loan that pays off the blanket mortgage on just their property.
Is a blanket loan the same as a bridge loan? ›
Blanket Mortgage vs Bridge Loan
Bridge loans differ from blanket loans in two ways: they are short-term and they cover only one property. Commercial bridge loans are short-term loans used by real estate investors until permanent financing is obtained.
What are the pros and cons of a blanket mortgage? ›
A blanket mortgage helps streamline the process of buying multiple properties at once. Experienced real estate investors or developers often use blanket mortgages in the commercial and residential real estate arenas. A blanket mortgage can require a high down payment, more closing costs and a balloon payment.
How do you qualify for a blanket mortgage? ›
Large commercial real estate companies and/or experienced investors with sizable, successful portfolios and on-hand cash are most likely to get approved for blanket mortgages. Blanket mortgage lenders will also look for the typical qualifying factors, like a high credit score and low debt-to-income ratio (DTI).
Is a blanket mortgage a lien? ›
Meanwhile, monthly payments cover the loan's principal and interest, although terms may vary. In a blanket mortgage, all listed properties remain under the ownership of the borrower but have a blanket lien[6] placed on them.
How does a blanket lien work? ›
What Is a Blanket Lien? A blanket lien is a lien that gives the right to seize, in the event of nonpayment, all types of assets serving as collateral owned by a debtor. A blanket lien, theoretically, gives a creditor a legal interest in all of the debtor's assets serving as collateral.
What is the difference between a blanket mortgage and a wraparound mortgage? ›
While both loans involve multiple mortgages, blanket loans also involve multiple properties. That's the difference. A wraparound mortgage is only ever for one.
Yes, you can buy a house with a 600 credit score — but it would be less challenging if your score were higher. A 600 score will not be high enough to qualify for a conventional home loan, so look into FHA loans, which have lower requirements: 500 with a 10 percent down payment, and 580 with a 3.5 percent down payment.
What is the difference between a blanket mortgage and a package mortgage? ›
Remember that package mortgages are not the same as blanket mortgages and understand the difference between the two. A blanket mortgage allows someone to purchase multiple separate properties, while package mortgages are solely for one property (with personal property included).
What is blanket mortgage insurance? ›
Blanket Mortgage protection covers a lender's entire mortgage portfolio for property damage and is an alternative for force-placed mortgage hazard insurance. This coverage is designed to cover unknown lapses in a homeowner's insurance coverage.
How does a blanket loan work? ›
A blanket mortgage allows you to pool all of your properties into one loan, making it easier to manage your mortgage payment and terms. While this type of loan is not the best fit for everyone, it can help real estate investors with larger portfolios consisting of many properties.
What is the new name for a bridge loan? ›
Also called gap financing, interim financing, or a swing loan, a bridge loan can help you buy your new home before your current property sells. Bridge loan terms range from six months to three years but generally end within 12 months.
What are the cons of a bridge loan? ›
Heightened APRs: Bridge loan interest rates are typically higher than traditional mortgage rates. Risky terms: Bridge loans have short repayment periods, interest-only payments and balloon payments. These terms can be risky if your home doesn't sell as expected or its value drops.
What is the benefit of blanket property coverage? ›
Blanket Coverage
Blanket coverage is designed to ensure that even when reconstruction costs exceed the listed value of one or more buildings, the insurer will pay the total reconstruction cost up to the policy limit. Many factors can cause unexpected increases in reconstruction costs following a catastrophic event.
What does a blanket lien cover? ›
What Is a Blanket Lien? A blanket lien is a lien that gives the right to seize, in the event of nonpayment, all types of assets serving as collateral owned by a debtor. A blanket lien, theoretically, gives a creditor a legal interest in all of the debtor's assets serving as collateral.
