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Key Takeaways
En-bloc mortgages help streamline the process of purchasing multiple properties at once. En-bloc mortgages are often used by experienced real estate investors and developers in both the commercial and residential real estate sectors. En-bloc mortgages can require larger down payments, more closing costs, and balloon payments.
If you are financing several properties at once, a lump sum mortgage is a great way to cut costs and eliminate paperwork. This type of loan isn't suitable for the average homeowner or first-time real estate investor, but it can be a useful tool for seasoned investors and developers of residential and commercial real estate.
What is a Blanket Mortgage?
A blanket mortgage (also known as a blanket loan) is a mortgage that covers multiple properties, with a group of assets collectively acting as collateral. Property developers and investors often buy several properties at once, so a blanket mortgage simplifies the process by combining those purchases into one loan.
Blanket mortgages can be refinanced like any other mortgage, and a borrower can sell one property in the group and keep the loans on the others intact. The mortgage usually must be repaid in full upon the sale of the secured property.
Blanket mortgages apply to both commercial and residential transactions, including the development and management of apartment complexes and condominiums, and are also used by individuals who purchase and resell homes.
“These are typically used for commercial purposes, but some residential landlords also use blanket mortgages to finance their rental property portfolios,” says Greg McBride, CFA, principal financial analyst at Bankrate.
Who is an umbrella mortgage best for?
En-bloc mortgages are designed for businesses and long-term investors buying properties in bulk. “It's not for beginners or independent landlords who want to jump into full-scale property management overnight,” McBride says. It's also not intended for individuals who own two properties, such as a main residence and a vacation home.
The advantages and disadvantages of a blanket mortgage
Benefits of a Comprehensive Housing Loan
Lower settlement costs: With a lump-sum mortgage, you may be able to save some money by not having to pay separate settlement costs and fees for each loan. Increased cash flow: The money you save on settlement costs can be reinvested into your portfolio to acquire more properties or take on additional projects. Easier to manage: With one loan, you only have one interest rate, one monthly payment, one escrow account, and less paperwork. Continuity: With a lump-sum mortgage, you don't have to pay off the entire loan if you sell just one property (you do have to pay off the portion of the loan that secured that property, though; you don't get to just pocket the sale proceeds).
Disadvantages of a comprehensive mortgage
Higher settlement costs: Although you only have to pay settlement costs once, blanket mortgage settlement costs are often higher than those of a single mortgage. Larger down payment: Blanket mortgages can require a down payment of as much as 50% of the property's total purchase price. Lump sum payment: Blanket mortgages are often structured so that borrowers make low payments (sometimes interest-only payments) for a period of time, followed by a larger lump sum payment. Making this large payment can be difficult if not planned in advance. Risk of foreclosure: When you use multiple properties as collateral, you risk losing all of your properties if you default on your loan repayments.
How to Get a Lumberjack Mortgage
If you decide that a blanket mortgage is right for your portfolio, you'll need to apply, but be aware that the process is different to applying for a regular mortgage. Here's an overview of the steps:
Find the right lender. Most main street banks and credit unions don't offer blanket mortgages. You'll probably need to look for a commercial lender, that is, one that handles loans for businesses and investments. Some mortgage brokers also specialize in this type of loan. Check the interest rates and terms. Blanket loans will have higher down payments and costs than regular mortgages because they may have higher origination fees. Comparison shopping is essential to know what's standard and what's out of the norm. Check each lender's borrower requirements. As with any loan, you'll need to meet minimum credit score and maximum debt-to-income ratio (DTI) standards to qualify for a blanket mortgage, but the standards may be higher. If applicable, lenders will also check your company's credit rating and debt service coverage ratio (DSCR). Fill out an application. Gather all your business documents in advance (credit reports, tax returns, financial statements). Lenders should also review the details of all the properties you want to finance. This includes fair market value, renovation plans, and figures for the rental or leasing income you can expect to receive from it.
How to Find an Inclusive Mortgage Lender
Umbrella mortgage lenders are less common than lenders that offer other types of mortgages.
“Umbrella mortgages aren't available to everyone,” McBride says, “so you have to do a lot of digging to find lenders and mortgage brokers who work with borrowers on this type of loan.”