Residential landlords can get a mortgage.
Do you know what the term “blanket mortgage” means?
Don’t be concerned. Many people in the financial industry have never been near one. They don’t know much more about them than you do.
However, if you’re going to engage as a real estate investor, such as as a residential landlord, a blanket mortgage (also known as a “blanket loan”) may be very beneficial to your business. What you should know is as follows.
What is the definition of a blanket mortgage?
A blanket mortgage is a loan that is used to finance multiple properties at the same time.
Blanket loans are frequently used by businesses to purchase commercial real estate investments. However, this form of loan can be beneficial in the following situations:
- Landlords who own businesses
- Landlords of residential properties
- Property flippers or developers
- Companies that specialize in construction
The lack of a “due on sale” clause is a crucial aspect of blanket mortgages. This means that the blanket loan will remain in place even if one or more of the rental properties on which it is secured are sold.
The property owner must repay (or “retire”) the portion of the mortgage represented by the sold property. However, they are not required to refinance the full loan.
Indeed, you might be able to work out a mortgage that allows you to sell, acquire, or swap properties in your real estate portfolio with minimal effort and money.
The Benefits of Blanket Loans
Blanket mortgage loans are very advantageous for property developers and real estate investors since they have a “partial release clause” rather than a “due on sale” provision.
A blanket loan could be used by a developer to purchase large areas of land and build dwellings on them. Then, as you sell each property, you’d only pay back the portion of the mortgage that was used to fund the single unit you sold.
This means you won’t have to deal with a slew of individual mortgages or refinancing the entire blanket mortgage every time you sell a home.
Residential landlords are eligible for the same incentive. You may own 12 rental properties but finance them with only one or two mortgage loans.
Here are a few more advantages that a blanket mortgage can provide:
There will be less paperwork.
A blanket loan entails significantly fewer paperwork. It enables you to apply for several mortgages while only requiring a single credit approval. You won’t have to provide credit, employment, or asset verification information more than once.
In addition, instead of paying several mortgage payments each month, you’d simply make one or two.
And you might be able to acquire and sell apartments with relatively small changes to your existing blanket mortgage.
Save your closing fees.
That’s not all, though. Consider the money you’d save on closing fees, both on the original mortgage and any subsequent refinances.
Refinancing numerous loans into a single blanket mortgage could save you money on monthly payments, allowing you to increase your cash flow. Your savings would, however, be dependent on the present interest rates you’re paying and the new rate you have access to.
More money is coming in.
Combining all of your equity throughout your portfolio could help you grow your firm. Because it may allow you to get the most money out of a cash-out refinance.
Even better, you’d only have to pay closing expenses on one cash-out refi deal.
It’s easier to diversify your assets.
Many private real estate investors eventually run into the same problem: they can only take out a certain number of single mortgages at a time. That ceiling might be a significant impediment to growth.
There are, of course, workarounds. The most usual scenario is for landlords to form separate corporations, each of which holds a modest number of house loans.
A blanket mortgage, on the other hand, eliminates this necessity by allowing you to purchase multiple residences with fewer debts.
Loan terms that could be improved
Consider someone who has 12 typical mortgages totaling $200,000 in debt. They are a homeowner with a $200,000 loan to each mortgage lender. They’ll blend in with the rest of the crowd.
A person with a blanket mortgage of $2,400,000 owes the same amount. They may, however, be given VIP treatment.
They can also take use of their high-roller status to obtain advantageous loan terms and tailor their own contract.
Lowering borrowing costs might help you increase your monthly cash flow from your real estate investment properties.
Blanket loans have a number of drawbacks.
Every advantage, as with most things in life, comes with a disadvantage. The following are some of the disadvantages of a blanket mortgage.
They are not available from all lenders.
One of the most significant disadvantages of a blanket mortgage is that it is not generally available.
Traditional mortgages are easy to come by with competitive offers. Finding a good price on a blanket mortgage, on the other hand, can be much more difficult.
For starters, many lenders do not provide them. As a result, you must seek out others who do. For starters, contact banks that offer business loans.
Portfolio lenders, as well as traditional and commercial banks, should be contacted to discuss your possibilities. Portfolio lenders view mortgages as long-term investments.
It is more difficult to qualify for a loan.
When you ask for a blanket loan, you should expect more examination of yourself, your financial portfolio, and your business objectives. After all, the mortgage lender is putting a significant amount of money on the line.
If you’re consolidating multiple mortgages into a single loan, you’ll need a lower loan-to-value ratio, which means you’ll need a lot of equity in the homes you’re refinancing.
In comparison to a single mortgage, appraisal fees, title searches, and other closing charges may be more.
Many people refuse to participate. But don’t despair. Long-time landlords are used to rejection and happy to keep hunting for the appropriate lender.
Term lengths are usually shorter, but this isn’t always the case.
There’s a chance you’ll be able to find a 30-year blanket loan. But it isn’t simple. You’re more likely to get one that lasts ten or fifteen years.
If the short-term amortization plans are too costly for you, don’t instantly move on. You may be able to work out a final balloon payment that keeps your monthly payments manageable. Just make sure to refinance or sell before the deadline!
More risk has been piled in a single loan.
All of your eggs are put in one basket with a blanket mortgage. This is far riskier than a conventional mortgage.
You won’t be defaulting on one or two minor mortgages if your firm fails. All of the rental units under your blanket mortgage could face foreclosure at the same time.
Some landlords have a number of blanket loans, which helps to spread the risk. However, this only works if you have a sizable portfolio. The benefits of these mortgages tend to increase as the size of the loan increases.
More info on blanket loans
Each blanket mortgage is usually customized for the borrower. This means that the quality of your money and business plan will determine the offer you obtain.
Blanket mortgages aren’t usually offered for loans less than $100,000 or more than $50 million.
You’ll normally be fine with a loan-to-value ratio (LTV) of 50-75 percent depending on your and your business’s financial condition. For purchase loans, this means a 25-50 percent down payment is required.
To qualify, you’ll need a lot of cash on hand, usually enough to cover six months’ worth of mortgage payments.
Interest rates fluctuate dramatically based on the same financial factors.
For a blanket loan, the most financially stable borrowers with the strongest credit scores can get near to current mortgage rates. The least creditworthy people who qualify, on the other hand, may have to pay 10% or more.
So, how do you feel about blanket mortgages?
Blanket mortgages will clearly benefit just a small percentage of landlords. Most people will be better off remaining with their current loans.
However, some people may find the benefits of a blanket loan to be extremely helpful. This form of financing may be worth looking into if you have a large portfolio, a solid business, and a lot of entrepreneurial flare.
What are the current rates for landlord mortgages?
Mortgage rates are near historic lows right now. Blanket loan rates, on the other hand, might be significantly higher than regular mortgage rates. However, if you have good credit, a lot of cash, and are prepared to look, you might be able to find a good offer.