What are the terms of blanket mortgages?

The length of a blanket loan can be anywhere from two years to 30 years, though many blanket loans fall into the 10- to 15-year range. Blanket loans rarely have prepayment penalties for paying off the loan early.

Blanket loans can require that the borrower make a balloon payment. This generally means lower initial monthly payments and a larger lump-sum payment at the end of the loan’s term. Developers and house flippers favor these balloon loans: the smaller payments over the first few years of the loan leave money free to cover construction and renovation costs.

The ability to sell, and thus release one or more properties from the collective collateral, is usually part of a release clause in the mortgage agreement. Most blanket loans have a release clause. Without this clause, the borrower might need to pay off the entire loan if they sell properties covered under the original agreement.

Most blanket loans are for residential and commercial investment properties. Blanket loans are not usually for buying primary residences or vacation homes.

How do I qualify for a blanket mortgage?

Mortgage professionals approve blanket loans for a variety of borrowers with equally diverse financial profiles. What do the borrowers have in common? Those who get approved for blanket loans often have existing real estate portfolios, considerable assets, and significant cash on hand. These borrowers are usually seasoned investors or real estate companies.

Mortgage professionals often approve borrowers with credit scores in the 680 to 720 or higher range. However, borrowers with lower credit scores may qualify if other financial factors are strong.

Borrowers with low debt-to-income (DTI) ratios usually have higher chances of loan approval. Mortgage professionals often wish to see a DTI of 43% or less for loan approval. Given the higher loan amount, they may wish to see a DTI of 35% or less to approve a blanket mortgage.

What about the down payment?

Down payments on blanket loans can range from 25% to 50% or more of the combined purchase price. This can be higher than the down payment requirements for other loan types. For example, buying a single-family investment property through an individual mortgage program may require between 15% and 20% down.

Who should consider a blanket mortgage?

• • House flippers often use blanket loans to buy the properties they intend to renovate for resale.
  • Real estate investors commonly buy multiple properties in multiple locations using blanket loans. They can resell all of the properties on a staggered timeline or keep some to rent out.
  • For property developers, blanket loans are often the go-to choice for funding the construction of several properties in different places. After they sell completed properties, developers sometimes use these funds to buy more land rather than pay down the entire loan.
  • Business owners commonly use blanket mortgages. Businesses with multiple locations can use blanket loans to buy and operate out of properties.

Casual investors with limited experience in the real estate market are usually not ideal candidates for blanket mortgages.

Can you refinance a blanket mortgage?

Yes. For example, if a change in interest rates or other factors in the future makes refinancing desirable, you may refinance into another blanket loan or split the existing blanket loan into individual loans.

Refinancing can also go in the other direction. Property owners can refinance separate loans into one blanket mortgage. Here, there’s a strong possibility of a lower interest rate and more favorable terms than the borrower previously had across their multiple loans with multiple terms.

An investor might, for example, refinance five rental properties under one loan and free up equity that can go toward purchasing a new property.

Pros & Cons of Blanket Mortgages

The plus side of blanket loans includes:

• • Saves time. With one approval process, one set of paperwork, and one set of closing times, the entire process is bound to go faster than a multi-loan approach.
  • Interest rates. The interest rates on single blanket mortgages are often lower than those a borrower might pay across multiple loans for the same properties. This may lead to lower monthly payments and thus more cash in hand each month.
  • Better terms. There’s less paperwork and a more streamlined process for the mortgage professionals, who are often incentivized to offer attractive terms for these loans. Agreeing on terms for one mortgage with a higher loan amount rather than negotiating multiple mortgages with lower amounts could also mean better terms for the borrower.
  • High loan-to-value ratios. The loan-to-value (LTV) ratio for blanket loans is usually up to 75% of the combined property value, resulting in considerably more funding than you might otherwise have with a single-property loan.
  • No limit on the number of properties. Fannie Mae and Freddie Mac limit the number of properties one borrower can finance to ten, including the borrower’s primary residence. Blanket loans don’t have that restriction.
  • Frees up cash. One set of fees and one set of closing costs means the borrower pays out significantly less upfront cash than they would with individual mortgages for multiple properties. That saved cash can then go to further investment.
  • Streamlining. Having an entire portfolio of investment properties under one loan means much less paperwork at the beginning of the process and simplified management over the life of the loan. With blanket loans, there is usually one monthly payment, one escrow account, and one mortgage to manage.

Some negatives of blanket loans could include:

• • Closing costs. While one set of closing costs is generally more affordable than multiple sets, the closing costs for blanket loans can be higher than those for single-property mortgages.
  • Down payment. This can be higher than other mortgage types; putting down up to 50% of the combined purchase price is common with blanket loans.
  • Default risk. The shared benefits of blanket loans can come with shared risks. If the owner defaults on one property, that could affect the other properties covered under the blanket loan.