Why would you need a blanket mortgage loan?
As mentioned above, investors and developers alike are most likely to benefit from getting a blanket mortgage loan. After all, obtaining this type of financing is typically much easier than applying for or refinancing multiple loans.
In practice, developers often use blanket mortgage loans to purchase land that is being subdivided into multiple residential properties. Once the homes are built and sold, the developers can use the financing to purchase new areas of land instead of paying down the existing loan.
Similarly, businesses with multiple locations may use a blanket mortgage as a type of commercial loan because it allows them to purchase multiple buildings at one time.
Additionally, house flippers and landlords looking to invest in a rental property can also benefit from this type of mortgage. If they want to build out their portfolio quickly, a blanket loan can be an efficient way to do so.
What are the pros and cons of blanket mortgages?
Just like any other type of real estate financing, there are advantages and disadvantages to taking out a blanket loan. To that end, we've laid them out below for your consideration. Read them over for a better idea of whether or not blanket financing is the right choice for your portfolio.
The main advantage blanket mortgages have over conventional loans is that they can help preserve your cash flow as an investor. In this case, you only have to worry about paying one set of closing costs, where you would have to pay closing costs each time with individual mortgages. Put simply, it can save you money, which can then be used to further expand your business.
Additionally, since blanket mortgages typically have higher principal amounts, you may be able to receive preferential treatment from your mortgage lender. For example, if you have a $2 million mortgage with one lender, you may be in better standing with them than if you had 10 traditional mortgage loans with different lenders, each having a smaller balance. This added clout may give you room to negotiate better loan terms.
On the other hand, the biggest disadvantage of blanket mortgages is they can be hard to find. Since they are such a specialized loan product, not all lenders offer them. However, if you are looking for one, your best bet is to start with portfolio lenders or commercial lenders.
In addition, since there is obviously more risk involved with this type of loan, you may face stricter qualifying requirements and less favorable loan terms than you would with a traditional mortgage. For example, you will likely need a better credit score and a larger down payment. Likewise, you may be subject to terms, like a prepayment penalty or balloon payment, which aren't common with traditional loans.
The bottom line
At the end of the day, blanket financing is certainly not for everyone. However, for those who need it, obtaining this type of financing is often much easier than getting multiple mortgages, especially if you're trying to get them all at one time. Still, if you're thinking of going this route, it's a good idea to talk to a mortgage lender. They can help you better understand whether or not this type of financing is right for you.