What Is A Blanket Mortgage, And Should You Use One?

*Rocket Mortgage® does not currently offer blanket mortgages.

When you’re looking to purchase multiple investment properties, getting a home loan for each one would cost a lot of time and money – and could be difficult to achieve given the qualification standards for each mortgage.

Let’s take a closer look at blanket mortgages and whether you should consider one for your properties.

A blanket mortgage, often called a blanket loan, is a type of financing that funds the purchase of multiple real estate properties at the same time. Popular among real estate investors, developers and owners of commercial property, blanket loans can streamline the lending process and reduce costs.

Typically, when an individual property under the “blanket” is sold or refinanced, a release clause is triggered for that property while the rest remain as part of the mortgage. That means the borrower can sell the property or refinance without having to pay off the entire loan.

Although Rocket Mortgage® doesn’t offer blanket mortgages at this time, here’s what you need to know about them.

Blanket loans are best for people who wish to purchase multiple pieces of real estate, such as experienced investors, house flippers, builders, developers and businesses looking to open multiple locations.

If you’re buying your first rental property, a blanket mortgage may not be the best fit for you. Since you’re just getting your feet wet with a single property, it may be simpler to look into other types of home loans that use less strict requirements and have lower closing costs. For example, you might want to use a conventional mortgage instead to finance the purchase of a multifamily home. Remember, you can always refinance the loan into a blanket mortgage as your portfolio grows, but getting approved for a traditional home loan is typically a good option for beginners.

While blanket mortgages can be beneficial, you should consider both the pros and cons of this type of financing before applying.

Pros Of Blanket Mortgages

When blanket mortgages or blanket loans are the right fit, they can have several advantages:

• A blanket mortgage puts all of your properties under one single mortgage versus multiple mortgages. This can make your portfolio and mortgage payments easier to manage.
• By purchasing multiple properties with one loan, you may have the ability to avoid multiple loan origination fees.
• Since it is one loan, you’ll have one monthly payment and one interest rate. If you had multiple loans for your different properties, you could be charged multiple interest rates.

Cons Of Blanket Mortgages

No matter the advantages, these loans do come with risks. Make sure you consider these before getting a blanket mortgage:

• Since your properties are used as collateral for one another, if you default on the loan, you risk losing some or all of your properties to foreclosure.
• Not all lenders offer blanket loans, and those that do may have strict requirements, so you might have difficulty obtaining this type of loan. At this time, Rocket Mortgage doesn’t offer blanket mortgages.
• Since laws and guidelines for blanket loans are different in each state, you cannot use the loan to purchase properties in multiple states.
• While you may not have to pay multiple origination fees, the closing costs on a blanket loan are much higher than a traditional mortgage.
• Depending on your lender, your blanket mortgage may have a balloon payment. This feature may seem attractive since your payments will be initially lower, but you’ll need to have the funds to cover the remaining loan amount at the end of the term.

If a blanket mortgage sounds like the right option for your business, you can use the following steps to apply:

1. Find a blanket mortgage lender: Traditional banks and credit unions typically don’t offer blanket loans, so you may need to look at commercial lenders instead.
2. Compare mortgage rates and terms: Before submitting an application, collect information from multiple lenders on their interest rates and origination fees, along with minimum credit score and down payment requirements.
3. Fill out a loan application: Once you’ve chosen a lender, you’ll need to provide them with your personal information and details about your real estate business.
4. Wait for approval: Your application will go through the underwriting process just like a conventional mortgage.
5. Close on the loan. After receiving approval from your lender, you can close on all of your investment properties.

A blanket mortgage allows you to pool all of your properties into one loan, making it easier to manage your mortgage payment and terms. While this type of loan is not the best fit for everyone, it can help real estate investors with larger portfolios consisting of many properties.

Before making a decision on whether to get this type of loan, first consider your financial situation and real estate investing goals. You can also take the opportunity to assess other types of financing or talk to a Home Loan Expert about your mortgage options.