Developers that buy multiple properties at once often don’t want individual mortgage programs. That can become a nightmare. They prefer the blanket mortgage, which is one mortgage program that covers the purchase of one or more properties.
The blanket mortgage has different terms and requirements than a standard mortgage.
How it Works
You can buy multiple residential properties, houses to flip, or even businesses with the blanket mortgage. You get one loan with one set of closing costs. You have one payment to make each month as well. What truly differs, though, is the lack of due on sale clause. Typically, when you have a mortgage on a property, if you sell the home, the mortgage immediately becomes due and payable.
This isn’t the case for the blanket mortgage. Here’s an example:
You used a blanket mortgage to buy three homes for a total of $750,000 in money borrowed. You plan to fix and flip the homes. You flip the first home in the first six months. You find a buyer and sell the home. Rather than using the money to pay down that portion of the mortgage, you are able to use the proceeds to buy another property and continue the cycle.
The terms on the blanket mortgage typically range from one to five years, though. This means your project should be short-term, and you should plan to pay the loan off in full within that time.
Refinancing With a Blanket Mortgage
If you already bought your properties and have individual mortgages on each one, but you would like to either lower your payments or take equity out of the homes, you can refinance into a blanket mortgage.
The refinance can help you get a lower interest rate than you were able to get on individual loans. This can also help you get the same terms on each home you own. If there’s equity in the homes, you may also be able to tap into it and use the cash proceeds to buy yet another property.
Sometimes borrowers can negotiate better terms on the loan because of the increased number of properties that are a part of the mortgage. In other words, the bank has a higher amount of collateral. If you default on the loan, you stand to lose all properties, which the bank could then sell to get their money back. Because of this, you can often negotiate better terms because of the high amount of collateral that is available.
You will have to search for blanket mortgage companies, because as you can guess, not all lenders offer this program. As you would for an individual loan, make sure you shop around for the right terms, interest rates, and closing costs. The right mortgage can help your venture in real estate investing be fruitful, so it’s worth the legwork.