Blanket Loan 101
“I just found my dream home, but I am worried I won’t be able to buy it in time because my old home won’t sell right away.”
Enter a buyer’s super hero, blanket loans!
A blanket loan allows for a homeowner to combine their current mortgage loan into an additional mortgage loan (i.e. the loan of a new home while you’re waiting for your old home to sell) enabling the homeowner to write a non-contingent offer on their new home without having to withdraw equity from their current home for the down payment requirements.
This guarantees the homeowner a long-term fixed interest rate on their new home without having to sell their current home. In this situation, lenders typically pay off the homeowner’s existing lien and add that to the blanket loan on interest-only payments. This significantly helps with the homeowner’s cash flow until the home is sold.
We sat down with one of our preferred lenders, Rob Morgan of First Federal Bank of Kansas City to talk about what homeowners can expect.
According to Rob, when looking at general terms for these types of loans, you can expect:
- 80% Overall Loan Value (between both homes)
- Owner Occupied Single Family Residence & Townhomes Only
- Must Have a Minimum Credit Score of 700
- An appraisal on Each Property is Required
- No Mortgage Delinquencies in the Past 24 Months
- No Foreclosures or Charge Offers in the Past 5 Years
*mortgage terms vary across lenders and are subject to change.
For most homeowners, this type of financing is a streamlined alternative to such options as carrying two separate mortgages, taking out an expensive short-term loan, or selling early and living in a rental.
This is done when the buyer still has a mortgage on their old property but needs to take out a new one on the new property. Often, such transactions are covered by a contingency clause – a clause stating the new home’s purchase and mortgage will not be closed until the old home is sold.
A blanket loan avoids this problem by giving the borrower more time to sell their old home. In some cases, they may be structured as an interest-only loan for up to 12 months before full amortization kicks in, which gives you a reasonable amount of time to sell your old home at a fair price and lessens your total mortgage burden as well.
When financing multiple properties creates discomfort, you might find that reaching for a blanket loan will give you warm and fuzzy peace of mind.