What is a Portfolio Loan?
Portfolio loans are made to fill the gap between conventional loans and private or hard money loans. A portfolio loans are made by lender who loans money to a borrower and keeps the debt on their portfolio to earn consistent interest on the loan. It’s not sold to other lenders.
In contrast, conventional loans are issued by lenders but are then sold to another lender who will service the loan. If you have ever closed on a loan you know that the first couple of payments are to the mortgage lender that closed your home. After a couple months you will get a letter saying your loan will be serviced by another lender.
Portfolio lenders are usually not Offered by large banks like Chase and Wells Fargo. It is Offered by smaller banks and non-retail lenders.
Portfolio loan programs are for people who are having a problem proving their income under the guideline of conventional mortgage. Or have had some credit issues, bankruptcies, foreclosures, tax liens, or student loan debt and cannot qualify for a conventional mortgage.
Who are Portfolio Loans for?
Portfolio loans are more about the person than the numbers. Let’s face it, bad things can happen to good people. Because of this, having a low credit score or a foreclosure is not something that will automatically disqualify you.
Lenders will want to know more about the person, what caused the credit issues or bankruptcy, and how you’ve recovered. Most people seek a portfolio loan because of following serval reasons, credit scores, self-employed, or had a recent bankruptcy or foreclosure.
Situations in which a portfolio loan is a good option:
- Lower credit scores
- Self-Employed borrowers with lower net income
- Recent Bankruptcy
- Short sale Tax issues Judgements and Liens.
- Foreign nationals
- High income low credit
- Nontraditional documented income
- High net worth borrower with lower documented income
- Flip property Properties that do not qualify for a conventional loan.
- Another reason to seek a portfolio loan is when you want to purchase a property that does not meet conventional or FHA property guidelines. The house may need a lot of repairs and doesn’t qualify for conventional or FHA loans.
- If you are wanting to buy a condo with an FHA loan, the condo must be FHA approved. If it isn’t, and you do not qualify for a conventional loan then a portfolio loan may be a good option.
- A property that may not be eligible for traditional financing. Electrical issues or exposed wiring Roof needs to be replaced Water damage Missing fixtures No appliances Damaged flooring Non-compliant updates.
Portfolio Loan Costs
The reason portfolio loans make sense is because they allow you to buy a home before home prices increase. The interest rates on portfolio loans are higher than current market rates. However, you can always refinance out of the loan into a more traditional mortgage when you’re able to improve your situation. Usually a down payment of at least 5%-25% is needed.
Up-front portfolio loan lender Closing costs as in Origination fees, Appraisal and lender with 3rd party fees can range from 0 to 3% of the loan amount. It would best to contact our loan expert to help pricing the loan according to your situation.