If you are a commercial real estate investor with many properties, you are aware that it is not a light task to juggle between the many home loans available. These come with different terms as well as financing costs. However, with the Arizona blanket loan, you will be required to have one installment that is made with just a single bank. This implies that there will only be one group of loan terms. The blanket loan allows you to buy, sell, or hold multiple properties under one home loan without a due on sale clause being used.
This loan attracts more investors since there are no limits on the number of properties that they can acquire or possess under one blanket mortgage. This loan can, therefore, be used by investors to get extra value, lower the monthly installments, or bargain for better loan terms.
Advantages of blanket mortgages
Helps in strengthening properties to refinance
One of the main reasons why a blanket loan is attractive to most investors is that it unites several loans from different banks into one single financing plan. The additional properties can be used in consulting banks for better terms and consequently lowering the monthly installment. Furthermore, it helps in raising the estimation of the properties as well as increasing the general net income.
Acquiring access to greater value
Assume that you are looking to put your finances together to make a down payment on another investment property. Or maybe you’re looking to rehabilitate one of your properties. The best move is to get all your properties and merge them under one separate loan which will often give you access to lots of finances that you will be able to access.
In most cases, financial institutions will not fund a loan on properties with one or more home loans. Banks guarantee that they are shielded against the probability of a borrower defaulting on the loan. Also, when a property has been merged under one blanket mortgage which constitutes of varying lots, then, a partial discharge arrangement can then be used by developers. From there, the partial discharge clause will be added to the home loan with the main aim of discharging one of the properties as a proprietor paying the loan of the home by the moneylender.
All in all, the blanket loan allows different lots to be funded by the developer. Besides, the lien will be removed from every one of the lots once they are sold. The bank will receive some portion of the acquired loan.
Disadvantages of blanket loans
Difficulty in selling single properties
With a blanket loan, it is often difficult for borrowers to sell or refinance properties independently. For instance, when a loan hasn’t been organized in a similar way to a halfway release and a due on the sell statement is existence, the sale of a property could make the whole home loan due.
The closing costs are high
Paying off a higher rate is not inconceivable with a blanket loan, and you will most likely need to have a lower LVT as well. The closing costs are also high as they are not based on the total sum of the complete loan but the total amount of the properties.
Lenders will also require that every property is appraised and could even demand physical examination on most of the properties. Once these are combined with title searches and titles insurance, including the maintenance and repair costs, these may end up being an extra cost to the closing costs of the loan.
Blanket loans must be used in only one state
Due to the guidelines on the blanket loans, they are not the same in every state. Blanket loans will require properties to be separate in every state. This implies that if you have properties in three states, then you will need to have three blanket loans to cover each of them.
Each property can be used as collateral for each other
This means that each property can be used as collateral for any other in case you default on the home loan. This means that the lender, bank, for example, can recover all of your properties to get back their losses. Thus, if any of your property fails to bring you the expected income, the whole portfolio can be put in danger.
For this reason, if your finances are flourishing, do not just accumulate deals for the sake of it. Remember the harsh economic times as well.
Difference between a blanket mortgage and a wraparound mortgage
The main difference between the two is that in the wraparound loan, the bank normally takes complete ownership on another home loan. For example, if a property has a selling value of $800,000, yet there is a loan on the property for $400,000 already. In case that $100,000 is put as a down payment by the buyer, the investor at that point will give a home loan on the remaining $700,000. The new home loan wraps over the first $400,000 loan because the new moneylender will take ownership for the earlier home loan.
However, a blanket mortgage does not work the same way, considering the fact that wraparound home loans are anticipated to take care of one property’s home loan and not more than one property. Bridge loans are mostly used in refinancing investment properties as well as purchasing raw land that will later be developed for commercial purposes. However, with bridge loans and unlike in blanket mortgages, they only cover one property and are short-term loans as well.
Looking for blanket loans is not a walk in the park. You will be required to look into smaller banks that focus on commercial loans or even credit unions. Likewise, blanket loans are not long-term, and the financing body will most likely not renew them as they are not entirely amortized when you look to refinance your blanket loan for a half year before the time ends can assist you in using these advantages and exploiting the included money fusions at the same time.
Before you make your decision, our team of qualified agents at Arizona Mortgage pros will help you with expert advice on the best loan for your specific situation. Call us anytime at (855) 501-5927.