Private blanket loans refer to mortgages that combine the mortgages for multiple properties into one mortgage agreement. This type of loan is usually used by developers or builders who will eventually resell (or sub-divide) the properties to be resold individually. Read on to learn more about private blanket loans.
Why Use a Blanket Mortgage?
A developer, home builder, house flipper, or investor can use a blanket mortgage when purchasing several properties to include all of them under a single mortgage agreement. This saves the additional costs of multiple loan origination fees and the possible expense of different interest rates for each property.
It also allows for only one credit approval instead of the necessity of credit approval for each property. This type of loan also allows for only one monthly payment instead of multiple monthly payments for multiple properties.
Another advantage of a blanket loan is that individual properties covered under the blanket loan can be sold or refinanced without disrupting the entirety of the mortgage.
Possible Pitfalls and Drawbacks of Private Blanket Mortgages
There are several potential serious pitfalls to using a blanket mortgage. One of these is that if you default on the blanket loan you could have all the properties involved foreclosed on.
In addition, since the laws involved with blanket loans vary from state to state a blanket loan cannot be used to purchase properties in different states. Blanket loans often can also require a larger down payment and more expensive closing costs. There can also be problems with appraisals for blanket loans since appraisals for all of the properties have to be done separately and if there is a problem for one of the properties it could delay or cancel the entire loan.
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