What Are Blanket Mortgages?
Blanket mortgages are essentially mortgages that cover more than one property or financing aspect. Commercial investors use them to purchase multiple properties that they will either sell, lease, or rent later. Some people use blanket mortgages to cover the cost of building a new home, which generally has more than one financing component.
Blanket mortgages have some distinguishing features from other mortgage types, like:
Single property resale: If you are using a blanket loan to purchase multiple properties, you’ll need a “partial release” clause that allows you to sell individual properties in the group. Without this, your mortgage balance will be due when you sell any property.
Higher mortgage costs: Blanket mortgages, while convenient, do have additional costs. They typically have higher interest rates. You’ll also find that they include higher fees and require you to invest in individual appraisals, title searches, and insurance fees.
Increased collateral risk: As with any mortgage, blanket mortgages use your property as collateral. However, if you default on a blanket loan, your entire grouping of properties might be at risk of foreclosure. That means they are a riskier loan option.
While some of this might give you pause, blanket mortgages can be an efficient and convenient investment decision in the right situation.
3 Benefits of Using Blanket Mortgages for Investment Property Financing
Investment property financing has many practical benefits and blanket mortgages are no different. When you use them strategically, they can expand your portfolio and increase your rental income.
1. Blanket mortgages provide convenience.
Securing rental property loans for multiple properties can be time-consuming. If you want to purchase 40 single-family homes, for example, you will have to fill out an application and sign documents for every one of those loans. Is that a practical use of your time?
Blanket mortgages allow you to fill out one application that serves to cover all of the properties you want to purchase. You’ll only have to submit documents to your blanket lender one time, and you can sign one master document for all of the properties. This saves a lot of time and resources.
2. Blanket mortgages make accounting more efficient.
Remember those 40 loans you had to apply for? Well, now you have to make monthly payments on every loan. You also have to account for them in your books, which can be tedious in and of itself. You’ll have to deal with taxes for all of those loans, as well.
Blanket loans cut out that hassle. Rather than managing 40 mortgage accounts, you can manage all of your properties in one single payment. That means you only have one entry in your book, and you’ll only have to manage taxes for that one loan. This makes accounting much simpler.
3. Blanket mortgages offer future investment potential.
Blanket mortgages give you flexibility in the future. After you’ve made payments and reduce your loan balance, you might be able to qualify for equity loans. You can use equity loans to purchase other investment properties. You might also qualify for cash-out refinancing offers.
While certain types of mortgages allow equity loans, blanket mortgages make it easier for you to get the highest offers for your property. Blanket loans are also something you might be able to refinance later. This could free up cash for other investments, as well.
Tips for Finding the Best Blanket Mortgages
Though there are a few commercial banks that might consider blanket mortgages, most blanket loan lenders are not banks. They are other financial institutions, and this might be the only type of product they offer. That might be limiting for consumers, but for property investors, it means your blanket lender offers expertise in the industry.
Finding the best blanket mortgages can be challenging, but you can use these tips to narrow down your options:
Research potential lenders: The first thing you need to do is search for blanket lenders. You don’t want to apply yet, just make a list of lenders that offer the product you need. Read through the features and client reviews if they are available.
Make a list of loan costs: Before you apply, you want to effectively “rank” your blanket lenders. Make a list of their potential interest rates, loan lengths, and additional costs. This will help you evaluate each lender. Add a column for features and benefits that improve your experience.
Apply for credit strategically: You won’t know which blanket loans are best until you apply. That means you need to start with the lenders that rank highest on your list. Your top three blanket lenders are a great place to start.
If for some reason you aren’t able to qualify for the first three blanket lenders, it’s generally okay to apply for other options. Often, multiple “rate shopping” inquiries count as a single credit inquiry.
Now that you have offers to compare, you’ll have to decide which option is right for your situation. Compare your loan terms carefully and consider making a simple chart to see the numbers side by side. The best choice for you is the one with the right combination of value and features.
Blanket mortgages are an excellent choice if you want to purchase multiple properties without the hassle of managing dozens of loans. They offer convenience and flexibility for property investors who want to diversify their portfolio.
Looking for a blanket mortgage for your investment property? Rental Home Financing has convenient solutions for multi-property investment financing.