The American Education Institute

MAKE A BLANKET MORTGAGE.

if all sellers could trust you, of course, they might all be willing to give you 100% financing on all their properties and expect no cash whatsoever at closing.  After all, it’s easy to see how well sellers make out when they simply replace the bank and hold your mortgage themselves.  For example, do you realize that a basic $80,000 mortgage paid back over 30 years at 10% interest will yield to the mortgage lender over a quarter million dollars?  Not a bad ROI by any-one’s  standards.

Unfortunately, most sellers (and all banks) cannot afford to trust you, and that’s why they require such things as cash down payments.  The reason they can’t afford to trust you is because you could easily take over their property, trash it completely, renege on the mortgage, and then they-re suck holding the property again in much worse condition which they may not be able to resell at all.  You might only be out a few payments, while they have lost a fortune.  Hence the reasoning that if they make yu pay a lot of your own money up front,  you’ll be much less likely to abandon the place later.

Always remember the second most basic rule of real estate.  Sellers and mortgage lenders do not want the property back!  The reason they sell and extend mortgages in the first place is to make money, not keep property.  Therefore, by proving yourself trustworthy you become a much better “risk” to them for taking non-moving property off their hands than you ever are for offering creative terms of sale.  If you make sure that they’ll make money, you’ll make money, too.

And so another creative financing method is called the “blanket mortgage,” which you can offer to an apparently inflexible seller who seems overly concerned that your offer of no down payment will translate later into your walking out on the deal.  The blanket mortgage will help assure him or her that you won’t because it covers more than just his individual property.  For example, you might offer some of your own assets in addition to the sale property as collateral to back the mortgage.  You could include the equity in your own home, another property that you’ve purchased, and even your own car as additional collateral in securing a mortgage that requires no down payment.

One thing about the blanket mortgage that you need to be aware of, however, is the fact of the time-frame for releasing your additional securities.  If the seller requires a long term for the mortgage (and you should try to keep it under five years if possible), you should also include additional clauses that allow you to free up your assets from the long-term agreement in exchange for prompt payments for a specified period.  In other words, if your own home and car are included along with the sale property as additional collateral, you might have the seller agree to release them from under the blanket mortgage following your prompt payments to him or her after perhaps a year or 18 months.

Remember, the blanket mortgage is just one more bargaining chip that you can use to obtain 100% financing.  It is not meant to put you under any more hardship or risk than the seller is taking by selling his property to you.  And it’s your job to convince him or her of that fact.

Dr. Eric T. Martin / 100% Financing When Buying Real Estate / 12-15-09