Blanket Mortgage for Residential Real Estate Investors

Residential Real Estate Investors

Now is still a great time for investors to purchase residential one to four unit property. Property values are relatively low, interest rates are low and conventional financing is available to a point. The problem occurs when you have more than 4 properties financed. Today the answer is blanket mortgage financing. This allows the serious investor an opportunity to have own 10, 15, 20 or more units. When an individual investor decides to have a real estate business a blanket mortgage can help them continue to grow.

Blanket Mortgage

This is a commercial loan for businesses that will encumber multiple properties under one loan. For residential investors this allows them to have stable long term financing. This can get them off the hard money roller coaster, especially if they are looking to hold instead of flip properties. Blanket loan financing will not limit how many units they can have financed as does conventional residential financing.

Here are the basic guidelines:

  • Minimum loan amount is $500,000
  • Minimum number of  residential units is 5
  • Minimum individual property value is $50,000
  • Minimum occupancy is 90%
  • Properties must be owned by a company – not individual
  • Property types include: single family, 2 to 4 unit, condominiums, town homes, multifamily properties and mixed use properties that are at least 60% residential.
  • Up to 75% loan to value
  • Minimum Debt coverage of 120%
  • Perfect Credit not mandatory


If you are a residential real estate investor with more than 5 units that can use stable long term financing you should consider a blanket loan for purchasing property, refinancing your existing portfolio or getting cash out to help you invest in other properties.




Credit and Commercial Real Estate Finance

There are great programs for Real Estate Investors to purchase Commercial Real Estate especially apartment buildings and mixed use residential and commercial properties. But I get a lot of people with poor credit, no money for down payment and no ownership experience asking to borrow hundreds of thousands of dollars or even millions of dollars bringing nothing to the table.

So first of all you can purchase commercial real estate with less than perfect credit. To do so you will have a significantly higher down payment, significantly higher interest rate and significantly higher closing costs. If you qualify for agency financing you can have 30 year amortized fixed rate financing below 5 – 6%. (The rates change regularly and this information is not about quoting today’s rates but making a point about credit and qualifying for commercial real estate financing.) The credit score should be above 680 but there is a little flexibility. Conversely, you can have less than perfect credit qualify for interest rates from 8% to as high as 16% or more. The portfolio programs are generally amortized over 20 to 25 years (like most bank financing) with a five year balloon. The hard money loans are generally interest only.

Therefore there is a significant cost for poor credit even if you can get financed at all. For example a $1,000,000 mortgage at 5% amortized over 30 years has a payment of $5,368 per month. The same $1,000,000 mortgage amortized over 20 years at 9% interest is $8,997. At 14% interest only the payment would be $11,667. The cost of poor credit could be as low as $3,629 per month or as high as $6,299 per month or more based on this example. That is over $75,000 per year in interest that would go in your pocket if you have good credit or work with a reputable credit restoration company to legally restore and improve your credit score.

When we look at the cost of credit and some clients unwillingness to address this issue it makes me wonder if they are the business minded people that will be successful owning commercial real estate and repaying the loan. I am pro customer. I want every customer to meet their financial goals and get the financing they desire to do so. But, I understand lenders who do not want to risk their money when the borrower has less than perfect credit and or is unwilling to restore their profile and improve their score.

So when a borrower is working with a reputable legal credit restoration service to improve their credit score not only will they save money monthly, but the savings in down payment and closing costs will be well worth the effort. For an agency mortgage of $1,000,000.00 the down payment on residential or mixed use property can be as low as 15%. Most portfolio programs require a minimum of 25% to 30% down and hard money financing may not finance any more than 50% to 60% of the purchase price.

So the message is clear. To be a commercial real estate investor you should do whatever you can to improve and maintain a good credit score. Even if you own property now and are paying a higher interest rate make sure you work on your credit profile. Often its more than just paying your bills on time. The way you pay your bills accounts approximately 35% of your FICO Score. That means that 65% of your score has nothing to do with how you pay. If you can not improve the score on your own seek professional help from a reputable legal credit restoration company. It will save thousands if not hundreds of thousands of dollars.


New Blanket Commercial and Residential Investor Mortgage

New Mortgage

Actually this is not a new program, but over the last 3 years many similar programs have been discontinued. Today private investors, hedge funds and bridge lenders have begun to offer programs similar to those that were available before the recent financial crisis. One such program available today is the Blanket Mortgage for Commercial or Residential Investor properties. The unique features to this financing option is that it is based on the value and cash flow of the property, not on the credit of the investor.

Commercial Mortgage Loan Size

Most lenders have minimum financing criteria. Generally speaking higher minimum loans are attached to the best rates and terms. This is sad because it locks out a lot of small investors and people buying investments in markets where the average loan size are smaller. It is not uncommon for  the note to be at least two million dollars. But there is a market that specializes in small cap financing (smaller loan amounts). These small cap programs have much higher rates to go with the lower loan sizes. These new (retread) blanket commercial programs offer lower rates and more flexible terms. Though still higher than conventional rates, they are much lower than small cap and hard money programs. For the Blanket Mortgage, the minimum funded amount is two hundred and fifty thousand dollars ($250,000) with no maximum loan size.

Residential Investor Loans

Residential Investor financing is the hardest hit in the banking meltdown. It is exciting news that private lenders are back in the market to fund investor properties based primarily on the value and cash flow of the subject property. For residential property owners with multiple properties they will not be hampered by the conventional guidelines that only allow for four residential loans, and the credit criteria is lowered while the emphasis is on the income and value of the collateral.

Blanket Mortgage

Whether single family, two to four units, multi-family, mixed use, single use, or industrial properties the blanket program will allow you to put like properties in the same area into one loan. This has many benefits to the owner. The benefits include:

  • Larger Financing Sizes: By increase the loan size by adding multiple properties the owner can qualify where they could not and may even get lower rates.
  • Mortgage Qualifying: Smaller balances often do not qualify for financing.
  • Lower Credit Score Requirements: Conventional and bank programs require higher credit scores and tougher credit criteria.
  • Fewer Total Loans: a blanket mortgage will cover two or more properties allowing for lower total cost and fewer note payments to monitor.
  • Make Conventional Programs Available: Once the financing is consolidated under one loan this may open opportunities for conventional residential financing.
  • Reduced Total Fees: Fewer loans equal fewer fees.
  • Reduced Rates: The rates are much lower than hard money and bridge loans.
  • Flexible Terms: The program offers short and long term options as well as fixed and adjustable plans with flexible amortizations.
If you are a Real Estate Investor with multiple properties a blanket mortgage may be the program for you to help you qualify for commercial or residential financing while reducing fees and costs as you grow and sustain your business.
UPDATE 7/2012