Monday, 02 December 2019 14:24

5 Questions to Determine if You Need a Blanket Mortgage

5 Questions to Determine ifBlanket mortgages sound like loans you take for that really expensive ReST bed you had your eye on. Even real estate professionals aren’t always aware they exist. These multi-property liens are often confused with products like wraparound mortgages. But a wraparound mortgage is just a fancy second lien, whereas a blanket mortgage is a first lien.

Not only are blanket mortgages easier to deal with than those other complicated loans, but they’re typically offered only by specialized companies. This is because traditional banks don’t have the capacity to train staff on how to help professionals who own multiple properties.

 The reality is traditional lenders are unequipped to handle blanket mortgages. Like online payments, mobile payments, and even chip cards, big banks are usually the last to jump on board with emerging trends. But there are a lot of real estate professionals and businesses with a full portfolio of properties. Blanket loans can be a huge help to those who understand loan products and how to leverage them. 

Here are five questions to ask yourself to determine if blanket mortgages are right for you.

1. Do I Already Own Multiple Properties?

According to data from the National Association of Realtors, heavy concentrations of homes are being purchased along the coast and in major metropolitan areas around the country. While residential lenders are hungry, FHFA-backed loans can only take you so far. Residential lenders are limited in how many government-funded loans they can give one entity, whether you’re a business or person.

If you’ve been in the real estate investment game for a while now, you likely own multiple properties. They can be different property types, from single-family dwellings to multi-unit complexes, and more. Adding to the problems, you may even have properties in multiple states.

It all sounded great on paper, but once you start dealing with tenants, or even property management companies, across multiple states, you’ll wish you never got into this game. Don’t give up and start selling Herbalife just yet.

Blanket mortgages are designed to streamline your properties, regardless of what type they are. And I’ll repeat again that these aren’t wraparound loans. It’s basically a loan consolidation, so there will be the same closing costs involved.

Know that you can’t just keep adding properties to the loan. Once you sign the paperwork, that’s the portfolio. So find the new property you want now and roll everything into one blanket loan.

2. What Is My Risk Tolerance?

Of course, every investor has a different risk tolerance. Even institutional investors have different risks they will and won’t take. My brother loves skydiving, but I personally won’t jump out of any plane on purpose. 

Blanket mortgages are safer in many aspects, but it does put all of your eggs in one basket. If an emergency comes up and you’ve let a property go to make ends meet, know that a blanket mortgage will stop that. 

3. Do I Have Trapped Equity?

During a housing market upswing, homeowners regularly leverage their equity by refinancing a home and pulling out what’s known as a home equity line of credit (HELOC). According to TransUnion, the amount of borrowers for HELOC loans is expected to double from 2017 to 2022. 

Housing Wire estimates the volume of HELOC loans at around $67 billion in 2018, but the Tax Cuts and Jobs Act regulated the usage of such loans. These tightened regulations will make it a lot harder to get a HELOC loan in the 2020s. And don’t even get me started on the disadvantages of junior loan products like HELOCs in the event of an earthquake, hurricane, or other natural disasters.

Blanket mortgages leverage existing equity to secure the best possible wholesale rates across all of your properties. Utility companies like Comcast and AT&T commonly offer “bundle and save” rates, and blanket mortgages can be seen as much the same. Just like you must still pay for a modem and cable box to take advantage of each service, you’ll still pay “connection” fees for each property, but you pay less in the long run.

4. Is Real Estate a Business or Hobby?

It’s easy for us to consolidate a real estate portfolio, no matter what your personal situation is. The real question you need to ask yourself is what your real estate portfolio really means to you. For some people, it’s a hobby. 

That’s perfectly acceptable. There are third-party services that even major banks use to manage properties. Plenty of businesses run with silent partners whose sole contribution is liquid funds, real property, working equipment, or other such services. 

People on the other side of the spectrum live, eat, breathe, and sleep this business. There are landlords out there who are hands-on with everything. Some live on-site, and others stop by to check on the property regularly. We all have good and bad experiences with a landlord who’s always coming around. That’s a topic for another blog.

If real estate is a serious business for you, then blanket mortgages can be the perfect way to consolidate everything into one lender, one loan, one payment, one asset. 

5. Does My Lender Offer Blanket Mortgages?

The last question that really matters is whether or not your lender even offers blanket mortgages. Odds are you’re reading this because you already know that the answer is no. You may think you have no other options, but we can help.

Although we offer a wide range of loans for any situation, we specialize in blanket mortgages. It’s a lot more common than you may think. Give us a call to have one of our consultants walk you through how to organize your scattered real estate portfolio.

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