If you buy properties to flip, then financing can become a major issue. While getting a single mortgage for your first property made sense, you'll have different needs if you've now established your business and buy multiple properties at once.
While you can stay on the mortgage per property route, you can also streamline your financing and apply for a blanket loan instead. How do these mortgages work, and what are their advantages?
What Is a Blanket Mortgage Loan?
People typically take out a mortgage to cover the purchase of a single property. Here, your lender gives you the money you need to buy the property.
As a flipper, you'll usually repay the loan in full when you've finished your renovation work and sold the property to its next buyer. However, a blanket loan works differently.
These mortgages cover more than one property. So, if you want to buy three houses to flip, your loan gives you enough money to buy all three at the same time. During the term of the mortgage, you make repayments in the usual way.
However, your final repayment works differently. When you sell the first house, you pay down that part of the overall loan, but the rest of the mortgage stays in place. It only ends when you sell all the properties covered by the loan or when your final repayment is due.
Why Use Blanket Mortgage Loans?
If you can bundle up multiple property loans into one mortgage, then you get a simpler solution. You have one loan to manage.
Plus, if you applied for individual mortgages, then you'd have arrangement and closing fees for each loan. You'll save money on these costs with a blanket mortgage that only charges you each fee once.
Lenders might also give you better deals for this kind of financing. You become a more serious prospect if you borrow more money, so you might get more advantageous terms.
In some cases, lenders also allow you to use a blanket mortgage on a rolling basis. When you repay part of the loan after you sell a property, they allow you to keep this finance rather than reducing the loan amount.
So, you could buy more properties in the future from the same mortgage package. You can move quickly when you see a valid investment property without having to arrange new financing.
To learn more about blanket loans and to find out if they are the right solution for you, ask real estate financing consultants from companies like Capital On Demand for advice.
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