If you plan on financing multiple properties at once, then blanket loans for real estate investors are the right option for you. It’s popular with flippers, investors, and developers. It helps them grow their businesses and seize new opportunities quickly. Let’s discuss how it works:

What Is a Blanket Loan?

A blanket loan combines two or more mortgages into one. It simplifies the process for developers buying multiple properties or consolidating loans. You can often sell one property without affecting the others on the loan. However, don’t forget to check the terms first.

Blanket Mortgage Example

A real estate developer wants to buy and develop land for a subdivision with 10 homes. Instead of taking 10 separate mortgages, the developer can get one blanket mortgage for the whole property. With this blanket mortgage:

  • The developer takes one loan for the cost of the entire subdivision.
  • The entire property is collateral for the loan.
  • A “release clause” allows parts of the loan to be paid off with each property sale.

For example, upon selling the first home, 1/10th of the loan is paid off. This releases that home from the mortgage. The remaining loan continues to cover the other 9 homes. This allows the developer to sell homes individually without paying off the entire mortgage.

How Do Blanket Loans Work for Real Estate Investors?

Getting a blanket loan is similar to getting a home loan. You will need to go through an underwriting process for your company’s financials, complete a title search, and get an appraisal for each property.

Once approved, you will have one interest rate for all the properties. If your loan has a partial release clause, you can sell individual properties without refinancing. However, when you sell a property, you must cover any lost collateral. You must also pay back the part of the loan that was secured by the sold property using the sale proceeds.

How to Get a Blanket Mortgage?

If you think a blanket mortgage is right for your portfolio, you will need to apply. Keep in mind that this process is different from applying for a regular mortgage. The following are the steps:

  • Find a Suitable Lender
    Most regular banks and credit unions don’t offer blanket mortgages. You will likely need to look for a commercial lender that specializes in business or investment financing. Some mortgage brokers also specialize in this type of lending.
  • Check Rates and Terms
    Blanket loans often have higher origination fees, down payments, and costs than regular home loans. It’s important to compare different lenders to understand standard rates and terms and spot any outliers.
  • Verify Each Lender’s Borrower Requirements
    To qualify for a blanket mortgage, you need to meet certain credit score and debt-to-income ratio (DTI) requirements. These can be stricter than regular loans. The lender will also review your company’s credit rating and debt-service coverage ratio (DSCR), if applicable.
  • Fill Out Your Application
    Gather all your business documentation in advance, such as credit reports, tax returns, and financial statements. The lender will also need details on all the properties you want to finance. These details include their fair market value, renovation plans, and expected rental or lease income.

Final Word

The decision to apply for a blanket loan depends on your unique situation and whether it makes financial sense for you. Blanket loans for real estate investors are a great option.

For more information, consult us at Red Door Funding. Over the years, we have provided numerous short-term loans to real estate investors. Dial (832) 539-1099 to discuss your requirements.

 

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