Portfolio loans have become more popular as a result of the housing market collapse in 2008. Prior to that time, most lenders sold their loans on the secondary market, and they were called “secondary sales.” Today’s risky assets are kept by the lender within its own portfolio.
What is a Portfolio Loan and How Hard Is To Get One?
A portfolio loan is typically a non-conventional loan that does not meet Fannie Mae or Freddie Mac guidelines. These loans do not meet conventional guidelines because the borrower has bad credit, a recent bankruptcy, or cannot fully document income. Because non-conventional loans are difficult to sell in the secondary market, these loans are kept within the
The bank statement loan is the most common portfolio loan these days. This loan scheme was created for self-employed individuals who do not qualify for a net income based on their tax returns.
What is a Portfolio Lender and How do They Work?
Portfolio lenders provide non-traditional mortgages or subprime loans to customers who are unable to satisfy traditional mortgage requirements due to a lack of credit history, income, or other concerns. These loans will be structured by portfolio lenders in such a manner that the interest and fee earnings serve as an incentive for them to keep and service the loans within their own portfolios
For What People are Portfolio Loans?
If you have excellent credit, can document your earnings, and cash for a normal or government mortgage, a portfolio lender is probably not what you’re searching for. However, if any of the situations below apply to you, a portfolio lender may be able to assist you with your mortgage. nBankruptcy less than two years old was discharged.
- A bankruptcy discharged less than 2 years ago
- Foreclosure within the past three years
- Low Or Bad credit score
- Recent late payments
- Tax liens or judgments
- Self-employed
- No tax returns
- Foreign Nationals with no SSN
List of Top Portfolio Lenders
Many people choose to use a collateralized loan as part of their overall financial plan. These portfolio lenders are known for providing a wide range of mortgage options that fit borrowers who don’t qualify for the typical mortgage.
- First National Bank of America – FNBA offers portfolio loans in all 50 states. They have bank statement loans, asset depletion loans, and ITIN Loans for borrowers who do not have a social security number. They recently raised their minimum credit score requirements and their rates are just a bit higher than other lenders.
- Sprout Mortgage – Sprout offers various loan programs in all 50 states including conventional and government loans. They have bank statement loans, ITIN loans and mortgages for those who have a recent bankruptcy.
- Citadel Servicing – Citadel is not licensed in every state but they do offer portfolio loans. They have bank statement loans and ITIN loans.
- Carrington Mortgage Services – Carrington is a national lender that offers conventional, government, and portfolio loans. They have programs for self-employed borrowers and also those with a recent bankruptcy.
- Ocean Lending – Ocean lending offers portfolio loans for individuals with a recent credit event and allows for credit scores as low as 500. They also offer hard money or private money loans
It is important to understand that each of these lenders will over various products that may or may not apply to you. They also change their programs often.
We are well connected with the portfolio lenders in the industry. Let us help you to determine which lender is the best fit for your situation.
Pros and Cons of Portfolio Loans
There are advantages and disadvantages associated with portfolio loans. We will outline the most common facts that you need to know before you decide whether a portfolio loan is right for you.
Pros
- a lower credit score is OK
- One Day Out Of Bankruptcy, foreclosure or short sale
- no PMI for down payments more than 20%
- higher DTI
- No tax returns needed
Cons
- Higher Interest rates than conventional mortgages
- investment properties Pre-payment penalties
- lender fees area higher
Keep in mind that these pros and cons may not apply to every portfolio lender or a portfolio loan. These are also just a few examples of portfolio lenders we work with. Their guidelines and product offerings change often.
What Are Portfolio Loan Mortgage Interest Rates?
One of the cons of a portfolio loan will be interest rates that are a bit higher than conventional or government loans. Each lender will have different rates based upon their need to offset the risk of keeping the loans within their own investment portfolios.
The down payment amount and credit scores are two major factors that determine your interest rate. The more you put down and the higher your interest rate, the lower your interest rate will be.
Some portfolio lenders either require a larger down payment or charge a higher interest rate for lending in areas they consider to be higher risk. Two examples of high-risk lending locations are Chicago and New York.
The bottom line is that you can buy your dream home with a portfolio loan and your interest rate will be slightly higher than what you would get with a conventional loan.
What are Fees and Closing Costs For Portfolio Loans?
One of the things you need to expect with a portfolio loan is higher lender fees. You may see origination fees of up to 2% and possibly points as well. Underwriting fees and other lender-based fees are likely but some of these fees are also common with conventional loans.
Plan on budgeting anywhere from 2%-5% of the loan for closing costs which include the lender fees.
Can I Finance An Investment With a Portfolio Loan?
Portfolio loans are also available for investment properties. For investment properties, portfolio lenders may require a larger down payment than what would be required for a primary residence.
Investment property portfolio lenders will help you with residential 1-4 unit properties. In some instances, you may be able to qualify based on the future cash flow of the building. Let us connect you with one of our portfolio lenders to discuss your options.
Summary
According to a journal of real estate research, portfolio lenders play a significant role in real estate today. After the Pandemic and the stock market downhill there is an increased number of people with bankruptcies and poor credit scores, portfolio loans are absolutely essential to maintain a stable real estate market. Without portfolio lenders offering these loan programs, there could be another market crash.
