Blanket Mortgage Loans
For Real Estate Investors looking to own and manage a portfolio of residential investment properties blanket loans are much more accessible today. There are many reasons to consider a blanket mortgage that include; ease of management, free up cash for additional investments and refinance to lower interest rates.
Ease of Management: Some investors have 10, 20 or more single family and 2 – 4 unit investment properties. They are much easier to manage if you have one lender. This is especially true if the lender escrows for taxes and insurance. Imagine the potential chaos of owning 12 properties with 12 mortgages from 7 lenders and 2 lenders do not escrow at all. 3 lenders escrow for taxes only and 2 lenders escrow for taxes and insurance. Now add to that chaos the the properties are in 4 different counties and property taxes are due at different times. A Blanket Loan creates an ease of management because there is one lender who escrows for taxes and insurance so there is only one payment per month. I do not mean to imply that an owner does not monitor tax and insurance payments. This is always necessary for many reasons. One loan with one monthly payment makes this much easier.
Cash for Additional Investments: Many investors are in the growth mode and are purchasing additional properties. A blanket loan allows an opportunity to take the equity from residential properties as a cash out refinance or an equity line of credit that can be used to purchase additional properties. Generally, the permanent term loan offers better rates than the equity line of credit. The advantage of the line of credit is you only pay interest on the amount of money you use. This is a big advantage for fix and flip investors or if the borrowers build up their portfolio to get another blanket mortgage, freeing up the equity line of credit to purchase additional properties. With the funds from the line of credit you are essentially a cash buyer.
Refinance to Lower Rates: Many investors build their residential real estate portfolios by using hard money loans. These are short term loans with higher rates. Some offer extended terms but the rates are still high. The blanket loan rates are much lower commercial mortgage rates and they are for longer terms. Some terms are 25 or 30 years fixed, while most have a 5 or 10 year balloon or adjustable feature.
Understanding Balloon Mortgage Loan Qualifications: Understanding the advantages of a Blanket Mortgage is good. We also need to understand what a this type of mortgage is and how to qualify. First of all a blanket mortgage is a commercial loan product. Commercial loan products are all portfolio programs. There is no secondary market like FNMA, FHMLC or GNMA to buy these mortgages from lenders. As such most of these loans are 5 to 10 year terms. The 30 year fixed rate options exist, but the rates are substantially higher. To fully understand what it means to be a portfolio product, consider this real scenario. A lender has $100 million dollars to lend. That sounds like a lot of money, but after they make 100 $1 million dollar portfolio mortgages they can no longer lend. This happens often to the local banks. They have a good portfolio product, but they run out of funds to lend. This should also help us to understand why the rates are higher than residential owner occupied conventional loans.
Because of federal regulation of residential mortgages many lenders only lend on portfolios of 5 or more units. To ensure they maximize their profits without increasing costs many lenders also lend on portfolios of $500,000 dollars or more. In general the borrower must have decent credit, the property must have minimum cash flow (minimum debt service coverage) and the portfolio should be stabilized (occupied).
February 2018 update:We can now lend on small portfolios of $200,000 or more with a minimum of 2 properties. Minimum property value is $60,000. Minimum loan is $200,000.
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