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A blanket mortgage enables real estate investors to buy, hold, and sell multiple properties under a single financing arrangement which is more efficient than having multiple individual mortgages. With a blanket loan, properties can be sold without triggering the “due on sale” which allows proceeds from the sale to be used to purchase more property.
If you need $500k or more in blanket financing for 5 or more properties consider ALB Commercial Capital. We offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. Set up a free consultation to get pre-qualified.
Blanket Mortgage Fundamentals
As an investor, blanket mortgages are useful to you either if you already own multiple properties, or if you are considering multiple-property deals. In either case, with multiple properties, and multiple individual mortgages you face a lot of administrative and possibly financial issues.
Imagine owning a dozen rental properties, each with its own mortgage. Each month, you are responsible for making 12 individual payments to multiple banks, all the while trying to staying organized of the various interest rates, and terms, and requirements. The more properties you have, the more complex the juggling becomes.
Now, imagine having all those properties enveloped by a single large mortgage. You make one payment to a single bank with a set rate and terms. That’s the blanket mortgage in a nutshell.
Blanket loans are useful for either long-term investors or builders and developers, and each can benefit in a unique way. Investors gain from the efficiency inherent in reduced loan administration while builders/developers can overcome a very typical financing challenge unique to them.Multi-Property Investors
As an investor’s portfolio grows, blanket mortgages become more valuable. The greater the number of units, the more cumbersome it is to coordinate paying all the mortgages and to stay on top of lenders’ requirements. Since blanket mortgages consolidate many into few, it reduces the volume of lending-related paperwork and both monthly and annual tasks an investor needs to handle.
Blanket mortgages also offer a way to overcome the roadblock that most private investors face – that is, the limit on the number of mortgages a person can carry at one time. Because a blanket mortgage reduces the number of loans outstanding, it opens the investor to pursue additional deal financing.
There’s also something called a ‘release’ clause that allows individual properties to be sold without affecting the underlying blanket loan. That makes it possible to profit from existing units without having to necessarily pay off the underlying loan. Simultaneously, newly acquired investments can be added into the blanket which means financing may be already existent and waiting.Builders & Developers
Builders and developers have a specific need for blanket loans related to releasing liens on developer’s land. Developers face a dilemma; they acquire land to build on, but typically, banks will not provide a construction loan unless the lot is free and clear of mortgages. Lenders’ rationale is, if the developer defaults on the lot loan, then the lender who’s fronted the money for the construction is at risk.
Enter the ‘release’ clause in a blanket mortgage. Let’s say a developer obtained a blanket loan on 10 buildable lots. If the loan is properly structured, the borrower can request a lot be released from the lien. So, assuming there’s enough equity and the lender agrees to the release, it effectively makes the lot free and clear. That means the builder can pursue the construction loan to build a house on the property.Blanket Mortgages vs. Traditional Mortgages
Blanket loans do not work for every situation, and there are advantages and disadvantages compared to traditional mortgages. Here are the main benefits and limitations.Benefits of Blanket Mortgages
Blanket mortgages are preferable to traditional mortgages in many ways. The two clearest benefits come from reduced costs and reduced bookkeeping load. Additional benefits include no limitations to the number of properties which can be included in a blanket loan, and these customized, typically large loans enhance borrower clout for larger future deals.Reduced Costs
If you obtain individual mortgages for multiple properties, you incur the costs of each. That means multiple loan origination, points, and application fees. Incurring multiple costs would apply whether you are getting purchase money or refinancing. With a blanket mortgage, you only incur one set of expenses – a single loan origination, one set of points, and one application fee.Reduced Bookkeeping
If you’ve ever dealt with multiple loans, particularly if they are from multiple lenders, you know what it’s like to juggle the details. Imagine being an investor going from 6 units to 60, trying to coordinate payment and lender demands for 60 individual mortgages. Now, reimagine the same scenario, but with 10 blanket mortgages covering 6 properties each. Ten mortgages are much more comparable to the bookkeeping load you are already familiar with.No Limitations on the Number of Properties
As a real estate investor, you are customarily capped on the number of mortgages you can obtain. Depending on the situation, this limit is usually 7-10 conventional or government-insured mortgages. Unless you form multiple business entitiesand buy a handful of properties in each, it curtails how large your investment portfolio can grow.
Blanket mortgages reduce the number of loans on the books. Instead of having, say, 6 mortgages, you might consolidate all those units under one blanket mortgage, freeing up the potential to obtain 5 additional mortgages.Additional Borrowing Clout
All other things being equal, a properly handled $500,000 mortgage will provide better financial clout than handling five $100,000 mortgages. To illustrate, if you want to obtain a loan for a $400,000 project, it’s much more likely if you’ve been responsible for a $500,000 blanket mortgage than if the maximum loan you’ve handled was $100,000, even if there were five of them.Customizable Loans
Traditional lending tends to be somewhat cookie cutter. Lenders look for secure, understandable investments that can be easily underwritten. Unusual investing situations tend to make traditional mortgage lenders squeamish and it’s hard to get approved. That’s why traditional mortgages are only written on a single property.
Blanket mortgages, on the other hand, are not traditional lending products. They are handled by lenders familiar with unique lending situations. So, they can be custom tailored (and approved) based as much on the financial potential of the holdings and your track record as an investor or developer, and less on a cookie-cutter approval process.
ALB Commercial Capital understands how Lenders interpret and approve these unique blanket loans.Disadvantages of Blanket Mortgages
Despite all of the advantages of blanket loans, they are not without their faults. They are harder to obtain than traditional mortgages. They are riskier to you in the sense that larger payments can be harder to make than multiple small ones, and default or foreclosure can be dire in comparison to loans merely covering single properties.Blanket Mortgages Can Be Hard to Obtain
Because blanket loans are large and specialized loans, lenders for them are harder to locate; and, getting approved usually requires very rigorous scrutiny of you as an investor or developer along with financial realities of the deal being evaluated.
Be prepared to supply a healthy amount of paperwork and supporting documentation on yourself, any other principals involved, the business entity, and the finances of the deal itself. Also, be prepared to be turned down, even if you think you’ve prepared a convincing loan package. You might need to approach multiple lenders before being approved.Blanket Mortgages Have Larger Payments
Because a sole loan encompasses the combined value of multiple underlying holdings, your mortgage payment is going to be large. Granted, whether you are paying on six $100,000 notes or a single $600,000 mortgage your overall obligation is the same. But there is some manifest “wiggle room” tending to, say, six individual $800 payments than there is with one $4,800 one.Blanket Mortgages Have Default Issues
Related to the above is what happens if you default on a loan. With individual mortgages, if you should fall behind on payments perhaps it’s only on one loan. Thus, only one property is at risk of foreclosure. With a blanket mortgage, if you slip into default, it’s for the entire loan and all the holdings covered by that loan are in jeopardy.
Blanket Mortgage Rates & Terms
Because blanket mortgages are unique to each situation, there is no common thread of specifications like you’d find with traditional mortgages. As an investor, you’ll need to pore over the details of loan costs, loan size, repayment terms, loan-to-value, and reserves during your application process.
Typical Blanket Mortgage Specifications
Blanket Mortgage Loan Sizes
$500k – $50,000,000
Common Blanket Loan Amortization Periods
15, 20, or 30 years
Typical Balloon Payments
3, 5, 10, or 15 years
Lender Fees and Points
Typical Loan to Value (LTV)
Cash Reserve Requirements
Varied (6 Months of Payments is Common)
Our minimum loan amount for a blanket mortgage will normally be around $500,000. The maximum loan can exceed $50,000,000; however, these larger blanket mortgages will be the domain of borrowers with the best long-term track records and profitability, and who are holding properties like large apartment complexes.
In many cases, blanket mortgages will have shorter repayment terms than traditional home mortgages. Though they can have 15 – 30-year amortization schedules, blanket mortgages will often have a balloon payment, requiring repayment or refinancing of the loan after 3, 5, 10 or 15 years.Blanket Mortgage Fees and Costs
Because blanket mortgages are customized, costs vary with each loan. It’s very much a case-by-case situation with respect to interest rates, fees, and points. Moreover, the numbers can vary widely from one lender to the next and even one loan placement to the next with a single provider.Blanket Mortgage Loan-to-Value (LTV) Ratio
Blanket mortgages are generally low leverage, with maximum loan-to-value (LTV) topping out around 75%. So, if you are trying to craft a blanket loan for five properties worth $1 million, the maximum loan you’ll likely obtain is for $750,000.
Keep in mind, that part of the purpose of the large equity cushion is to allow the possible release of a property. Even with one property removed from the blanket loan, the lender wants to be sure there’s sufficient remaining collateral. So, while having a fairly low LTV can seem problematic at the time of borrowing, it actually becomes useful later if you want to sell a property outright or release a lot on which to build.Cash Reserves
When you apply for a blanket mortgage, most lenders will require you to have a certain amount of cash reserves available. Blanket mortgage lenders typically require reserves sufficient to cover at least six months of mortgage payments. So, if your blanket mortgage has a payment of $6,000 per month, you’ll need to have $36,000 in cash reserves.
In many cases, the reserve requirement is based on interest only. So, if the interest portion of the above loan is only $4,800 per month, and assuming a requirement for 6 months of cash reserves, you would need only $28,800.
Blanket Loan Qualifications
Qualifying for a blanket mortgage is vastly different from getting a mortgage on a personal residence. That’s because these tend to be mainly asset-based, so their value and cash flow take precedence over your personal finances. Still, expect your personal finances to be evaluated.
Here is a list of common blanket mortgage qualifications :1. Strength of the Borrowers
When a lender looks at the borrowers, they want to determine how capable they are likely to be managing a large blanket loan. The areas of concern break down to: creditworthiness of each principal involved; the financial track record of the business entity; and, the industry experience the principals bring to the table.Credit of the Borrowers
Whether the borrower is an individual or a group of people, their creditworthiness will be considered. This includes looking atcredit scores, repayment history, income, total debt, and debt to income ratio.
While blanket mortgages are usually asset-based, and much of the emphasis will be on the financial realities of the properties, be advised that, because of the loan amounts involved, creditworthiness of the borrower(s) is still a significant consideration.Credit of the Business Entity
Since it’s likely that a borrower for a blanket loan runs a business entity such as an LLC, the track record, and creditworthiness of the entity will be also be considered. Just as with personal credit, this includes assessing outstanding credit, total debt, debt to income, and repayment history. Generally, lenders will want to see a personal credit score above 680.Industry Experienc
Blanket mortgage lenders will also consider the industry track record of the investor or builder/developer. In most cases, this will include any principals involved in the deal. Each lender will vary in terms of minimum requirements for a borrower’s industry experience but expect the figure to begin at 2 years.
The exact amount and nature of experience required will be a function of the amount you’re borrowing and complexity of the project. The mortgage provider will look specifically at relevant experience as a builder, rehabber, or owner of a portfolio of investment properties. Lenders will typically seek documentation proving that you have successfully handled similar projects or have successfully managed rental portfolios.2. Strength of the Properties
Mentioned above, blanket lenders will give special attention to the value and financial performance of the subject properties. Here are the most common areas of evaluation related to them.Number of Properties Covered by the Loan
Blanket lenders will have a preferred range of properties they’ll cover. Some lenders will favor a smaller number of properties, feeling that fewer units provides greater overall ability to repay. Others take the opposite approach, perceiving greater security in a greater volume of collateral.
Questioning the lender about their preferential number of properties in a blanket loan should be an early part of your discussion with them.Type of Properties Covered by the Blanket Loan
Despite blanket loans being flexible tools, even blanket lenders like to see portfolios they can understand. The more your property holdings are understandable, the more likely you are to be approved.
So, you may find a lender that prefers properties be of a similar type (ie. all single-family residential units). Others may prefer holdings all be in a single state. Fortunately, some are more adventurous and will accept portfolios of mixed property types or geographically dispersed.Term of the Blanket Loan
Whether the blanket loan is needed short-term or long-term is yet another factor lenders will take into consideration. Generally, lenders prefer shorter-term loans (perhaps under 10 years) because they are not as exposed as with a longer-term loan.Length of Ownership
The length of time you’ve owned a property will play a large role in the approval process. If you’ve owned the properties for months – better yet years – lenders will be more comfortable than if you’ve only owned them for weeks.Existing Loans and Seasoning
If there is any existing financing on the property, the longer you’ve had it (called seasoning) the better. The more seasoning of existing financing, the greater track record of payments exists.
For example, if you are refinancing, lenders will want to see a track record of paying on the existing loans before considering a blanket to replace them. Or, if any of the existing financing is going to stay on the property (for an example, if you are seeking a blanket first mortgage, but certain second mortgages or credit lines will remain), lenders will want to see a solid history on those.Net Operating Income
If you are seeking a blanket loan on a rental portfolio, a primary figure that will be examined is net operating income. This is a common calculation that looks at net rental income after subtracting all operating expenses (including vacancy) from the gross rent. So:
Net Operating Income = Gross Income – (Vacancy + Operating Expenses)Debt Service Coverage
Lenders will use the net operating income to compute the debt service coverage ratio (DSCR) on the property, which is a primary computation in determining how well the income from the properties will cover the debt servicing (paying the principal and interest payments). The basic formula is:
Debt Service Coverage Ratio = Net Operating Income / Debt service
A figure greater than 1 means that the deal can cover its debt service. A figure less than 1 means it can’t, and it will probably be declined.
Application Process & Necessary Documents for a Blanket Mortgage
Applying for a blanket mortgage is not unlike one for a single property, just more rigorous. If you are seeking a blanket mortgage for 5 or more rental properties (1-20 units) and need $500K or more in blanket financing, consider ALB Commercial Capital. We can provide you access to programs that offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. We offer free, no-obligation consultations to investors looking for flexible financing solutions.
If you are seeking a blanket mortgage for 5 or more rental properties (1-20 units) and need $500K or more in blanket financing, consider ALB Commercial Capital. We have programs that offer a loan-to-value up to 75%, fixed rates, and terms of 5 or 10 years. To get pre-qualified or to find out more about our rental portfolio loan programs, please contact our office at800-510-2214 to speak with one of our commercial loan Advisors or click here to set up a free consultation to get prequalified