Universal Mortgage: How it works and who should use it
A wraparound mortgage helps simplify the process of purchasing multiple properties at once.
A wraparound mortgage is often used by experienced real estate investors or developers in both the commercial and residential real estate fields.
A wraparound mortgage can require a higher down payment, more closing costs and a larger down payment.
If you’re looking to finance more than one property at a time, a wraparound mortgage can be a great way to cut costs and reduce paperwork. This type of loan is not suitable for ordinary homeowners or first-time real estate investors, but it can be a useful tool for investors and developers of residential and commercial real estate. Commercial real estate.
What is a blanket mortgage?
A blanket mortgage, also referred to as a blanket loan, is a mortgage covering multiple properties, with the combined pool of assets acting as collateral. Real estate developers and Investors You’ll often purchase more than one property at a time, so a wraparound mortgage simplifies the process by consolidating those purchases under one loan.
It can be a comprehensive mortgage Refinancing Just like any other mortgage. It also allows the borrower to sell one property from the group while retaining the loan for others. Normally, the mortgage must be paid in full when the secured property is sold.
A blanket mortgage has applications in both commercial and residential transactions, including those involving the development and management of multifamily housing or apartment buildings. They are also used by individuals who purchase and Flip houses.
“Although typically used in a commercial context, there are residential landlords who use a blanket mortgage to finance a portfolio of rental properties,” says Greg McBride, CFA, chief financial analyst at Bankrate.
Who are comprehensive mortgages best for?
The wraparound mortgage is designed for businesses or frequent investors who purchase real estate in large quantities. “This is not for a novice property owner looking to jump into large-scale property management overnight,” McBride says. They are also not intended for use by individuals who have two properties, such as a main house and a townhouse Vacation home.
Pros and cons of a wraparound mortgage
Pros of a comprehensive mortgage
minimum Closing costs: You may see some savings with a wraparound mortgage because you won’t have to pay separate closing costs and fees for each loan.
Greater cash flow: You can reinvest the money you saved in closing costs back into your portfolio to acquire more properties or launch additional projects.
Easier management: One loan means one interest rate, one monthly payment, and one escrow account, which reduces paperwork.
continuity: With a wraparound mortgage, you don’t have to repay the entire loan if you sell just one property. (However, you have to repay the portion of the loan that secured that property — you can’t just get the proceeds from the sale.)
Disadvantages of a blanket mortgage
More expensive closing costs: While you only have to pay closing costs once, comprehensive mortgage closing costs are often higher than the closing costs of a single mortgage.
Higher down payment: Blanket mortgages can require a down payment of up to 50 percent of the combined purchase price of the property.
Balloon payments: Blanket mortgages are often structured so that the borrower makes lower payments (sometimes interest-only payments) for a period of time, followed by a larger lump sum payout. This big payment can be difficult if you don’t plan ahead.
Foreclosure risk: With so many properties used as collateral, you risk losing them all if you default on the loan.
How to get a comprehensive mortgage loan
If you decide that a wraparound mortgage might be a good fit for your investment portfolio, you’ll need to apply – but be aware that the process is different from applying for a regular mortgage. Here is an overview of the steps:
Find the right lender. Most Main Street banks and credit unions do not offer blanket mortgages. You’ll probably have to look for a Commercial lender – Someone who deals in corporate financing or investments. Some mortgage brokers specialize in this type of lending as well.
Check prices and conditions. Since blanket loans can come with higher origination fees, the down payment and costs are usually higher than those of regular home loans. Comparison shopping is crucial to getting a sense of what is standard and what may be out of line.
Check each lender’s borrower requirements. As with any loan, you need to meet a minimum and maximum credit score Debt-to-income ratio (DTI) The minimum to qualify for a universal mortgage – but the bar may be higher than that. If applicable, the lender will review your company’s credit rating and Debt Service Coverage Ratio (DSCR)also.
Fill out your application. Gather all of your business documents (credit reports, tax returns, and financial statements) in advance. The lender will also want to see details about all the properties you wish to finance. This includes its fair market value, any renovation plans, and the rental numbers or rental income it will generate.
How to Find a Comprehensive Mortgage Lender
Universal mortgage lenders are not as popular as those offering other types of home loans.
“Blanket mortgages don’t have universal availability,” McBride says. “You will have to do some research to find lenders and mortgage brokers who work with borrowers on this type of loan.”