Thursday, 03 January 2019 00:00

What Every Real Estate Investor Needs to Know About a Blanket Mortgage

What Every Real Estate Investor Needs to Know About a Blanket Mortgage Rental Home FinancingLike most real estate investors, you’re probably very interested in the prospect of adding a blanket mortgage to your portfolio. Your goal may even involve eventually owning a dozen properties or more.

The path to that level of success is going to involve a lot of financing, which is why you’ve probably considered the potential of a blanket mortgage.

Before you do, be sure you understand the most important aspects of this kind of financing.

What You Need to Know Before Applying for a Blanket Mortgage

While a blanket mortgage probably seems straightforward enough, there are six factors every real estate investor needs to consider before applying for this type of loan.

 

1. Blanket Mortgages Tend to Be for Five or More Homes

Technically, a blanket loan is defined as a single mortgage that covers more than one house.

For the most part, though, you’ll find that the vast majority of lenders prefer to offer a blanket mortgage only when it’s going to cover at least five homes.

As we’ll cover in further detail below, this is why planning is so important. You may be able to find a lender who will offer you a blanket loan for just two homes, but you may also be forced to consider waiting until you can afford five or more (or simply take out two different mortgages).

2. Request a Partial Release Provision if You Plan on Building and Selling

Blanket loans have become extremely popular among builders who can use these mortgages to finance several projects at once.

Sometimes, this includes real estate investors who are looking for a quick profit by selling these new homes right away.

If you fall into this category, be sure your blanket loan comes with a partial release provision. This provision ensures that individual liens can be removed from the mortgage separately as you sell off each parcel.

This guards against one of the most common criticisms of blanket mortgages, which is that they can make it cumbersome to sell off properties. As long as you have a partial release provision, this shouldn’t be a concern.

3. They Require Serious Planning

For most people, this probably seems like a no-brainer. House hunters may spend months – even longer – before actually applying for a mortgage. Of course, they only want to purchase one home and they plan on living in it.

Real estate investors, on the other hand, tend to act much quicker. They aren’t nearly as intimidated by the process and, when opportunities present themselves, they know they can’t afford to lose time.

Still, if you have your sights set on a blanket mortgage, you should start your planning right now.

For one thing, you want to make sure you’re maximizing the number of properties you’ll be purchasing with this loan. Otherwise, you could purchase five homes now only to realize that, with a little more planning, you could have purchased a sixth that represented a major opportunity.

Furthermore, it’s much harder to find a lender. Unlike traditional loans, you can’t simply go to your local bank for a blanket mortgage.

Obviously, as with any loan, the lender plays an extremely important role. They’re not just the one issuing it. They’re the ones deciding what the terms will be.

When taking out blanket loans, finding a lender can be a challenge, but you should still take extra steps to ensure you’re getting the best possible deal. The planning will be worth it.

4. One Default Can Cause a Default on the Entire Mortgage

Another, simpler aspect of the planning process is simply ensuring you’ll be able to make all of your payments on time.

While this probably goes without saying, with a blanket loan, you’re only making one payment, but it’s for multiple properties.

If one of those properties fails to become a consistent source of revenue, you could sell it (provided you secured a partial release provision). What you couldn’t do, though, is simply allow the mortgage to go into default and let the lender foreclose on it.

The reason is that your lender could decide to foreclose on all of the homes covered by the blanket mortgage they provided.

Therefore, think long and hard before choosing any investment properties when using blanket loans. Two missed payments could be enough to take multiple homes out of your portfolio.

5. All the Homes Covered by One Blanket Loan Must Be Located in the Same State

It’s not unheard of for a real estate investor to own properties across numerous states. In fact, it’s one of the best ways to diversify a real estate portfolio.

Unfortunately, if you had planned to use a blanket mortgage to fortify your portfolio with this kind of protection, you’ll have to find another option. You can only use these loans to pay for houses that are all located within the same state. As each state has its own laws regarding real estate, mortgages, and even blanket loans, this kind of financing can’t cross state lines.

This is just one more reason to begin your planning as early as possible. If you are trying to maximize the number of properties you fit on one mortgage, start by considering which state offers the best opportunities at the moment.

6. Blanket Loans Are Great for Refinancing Multiple Mortgages

Finally, blanket loans aren’t just for buying new properties. They can also be used to refinance your current portfolio. So, if you already have a number of mortgages and they’re holding back your potential, now may be the time to think about folding them in to just one loan.

As we covered earlier, with a partial release provision, there’s no need to worry that this decision would make it more difficult to sell off your properties down the road.

Securing the Blanket Mortgage Your Portfolio Needs

Whatever your reason for needing a blanket mortgage, we can save you a lot of time on the planning process. At Rental Home Financing, we’ve designed a blanket loan application process that you can get started on right away.

We’ll let you know if you’ve been approved ASAP and are happy to answer any important questions you may have.

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