What is a blanket mortgage?
A blanket mortgage is typically a single mortgage that covers two or more homes or real estate properties. Blanket mortgages are most commonly used by property developers and real estate investors. With this type of mortgage, you can sell one of the properties secured by the mortgage without having to pay back the full loan.
Who are blanket mortgages for?
Blanket mortgages are most often used by real estate developers, investors or flippers who purchase multiple residential or commercial properties, like multifamily homes or apartment buildings.
If you intend to finance or invest in the purchase of more than one property, a blanket mortgage could be a good loan choice. Also known as “blanket loans,” these mortgages help investors cover the expenses of buying and developing land that borrowers want to divide into many individual lots. If you’re a house flipper, you might seek a blanket mortgage to benefit from the flexibility so you have more buying and selling options.
Blanket mortgages allow the owners to sell one of the properties that’s part of the “blanket” and trigger a release clause, which releases the lien from that particular property as the bank is paid back.
Blanket mortgage pros and cons
Blanket mortgages, like other types of home loans, have advantages and disadvantages.
Advantages of a blanket mortgage
One of the primary advantages of a blanket mortgage is that it lets investors and borrowers put multiple properties under one loan. Property owners can save a significant amount of money, time and energy by taking on one blanket mortgage rather than a different loan for each property.
A blanket mortgage might let a borrower keep more cash on hand; instead of paying fees associated with multiple loans, the borrower only pays fees for a single loan. This potentially frees up capital for a real estate investor to put toward other uses.
Disadvantages of a blanket mortgage
A blanket mortgage has some downsides. First, you may have to put more money down than with a regular mortgage because of the higher loan amount. The loan terms can also be different from traditional mortgages, and defaulting on the loan may result in the loss of all the secured properties.
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