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Blanket mortgage: How it works and who should use it

Bankrate logo Bankrate 6/16/2021 Ellen Chang
a large brick building with grass in front of a house: An apartment garden complex © jessica.kirsh/Shutterstock An apartment garden complex

What is a blanket mortgage?

A blanket mortgage is a single mortgage that covers multiple properties, with the group of assets serving as collateral for the loan. Real estate developers and larger investors often purchase more than one property at a time, so a blanket mortgage allows them to simplify those transactions with one loan.

The blanket mortgage also allows the borrower to sell one property from the group and retain the loan for the others without needing to pay them off.

Blanket mortgages have applications in both commercial and residential transactions, including those involving multifamily housing or apartment buildings. They are also used by companies or developers who buy and flip homes.

"While they are usually used in a commercial context, there are residential landlords that utilize a blanket mortgage to finance a portfolio of rental properties," says Greg McBride, CFA, chief financial analyst for Bankrate.

A blanket mortgage is also referred to as a blanket loan, and it can be refinanced just like any other mortgage.

Who should get a blanket mortgage?

Blanket mortgages are designed for companies that buy homes in bulk, or experienced investors or landlords that own a portfolio of properties, either commercial or residential.

"This is not for a newbie, mom-and-pop landlord that is looking to jump into full-scale real estate management overnight," McBride says.

They are also not intended for a borrower with a primary residence and a second vacation home.

Pros and cons of a blanket mortgage

All mortgages come with closing costs, but there can be some savings with a blanket mortgage because you're closing just one loan as opposed to separate loans for each property, McBride says. These savings translate to more cash flow for additional property or other projects.

Blanket mortgages require a higher down payment, however - north of 25 percent to as much as 50 percent - which can be a roadblock, McBride adds. If one of the properties securing the loan is sold, you must pay back the portion of the loan that was securing that property - you can't just pocket it.

The blanket mortgage might be structured with a balloon payment, as well. This allows the borrower to make lower payments for a period of time, followed by paying a larger lump sum all at once. Sometimes the loan is structured so that the borrower is only paying interest initially. This type of arrangement tends to be offered to borrowers with excellent credit and considerable wealth and assets.

How to find a blanket mortgage lender

Mortgage lenders who specialize in blanket mortgages aren't as readily available as those offering other types of loans. Begin by researching commercial lenders and taking note of their rates, fees and down payment requirements.

"Blanket mortgages do not have blanket availability," McBride says. "You'll have to do some digging to find lenders and mortgage brokers that work with borrowers on this type of loan. Oftentimes a bank or lender that does a lot of commercial lending will have this as part of their product lineup."

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