What Is A Portfolio Loan And How It Can Help You Buy A Home

Forbes Finance 0 month ago
Real estate agent and customers shaking hands together celebrating finished contract after about home insurance and investment loan, handshake and successful deal
Real estate agent and customers shaking hands together celebrating finished contract after about ... [+] home insurance and investment loan, handshake and successful deal.

Not everyone has a cookie-cutter financial situation. Fortunately, there are options available for those who may not meet the normal qualifying standards to get approved for a mortgage. One of those options is getting a portfolio loan. Read on below to learn what portfolio loans are, how they work, and what the pros and cons might be for using one to buy a home.

What is a portfolio loan?

Typically, when you’re given a mortgage, your lender does not keep your debt in-house. Instead, lenders sell most of the mortgages they grant to third parties like Fannie Mae and Freddie Mac in order to generate more funds to lend to other customers.

However, in order to be sold off, the loans must meet certain criteria set by the buyers. Most of the loans that a lender gives out will fall in line with those criteria. However, occasionally, a mortgage company will agree to underwrite a loan that falls outside of those typical qualifying standards.

Those outside-of-the-box loans are known as portfolio loans. The name comes from the fact that, in this case, rather than being sold off, the debt is kept in-house as part of the lender’s portfolio. In general, these loan products tend to be offered by smaller, community banks and credit unions.

Who might need a portfolio loan?

For the most part, buyers who can qualify for traditional financing won’t be offered the option of a portfolio loan. Instead, these loans are meant to help borrowers in situations that fall outside of the typical qualifying standards become homeowners.

Some financial situations that may require a portfolio include:

  • Self-employed borrowers
  • Those with poor credit scores
  • Those who have gone through a bankruptcy, short sale, or foreclosure
  • Those facing judgements, liens, or tax issues
  • Foreign nationals
  • Investors who have maxed out their traditional financing options

Pros and cons of a portfolio loan

Pros

Looser qualifying standards

The biggest benefit to a portfolio loan as the borrower is that, since the lender does not intend to sell your debt, they’re not beholden to the qualifying criteria set by those third-party buyers. Instead, they can set their own rules. Essentially, a portfolio loan may allow you to get financing that would be otherwise unavailable to you.

Closer relationship with your lender

Again, since your debt won’t be sold off, you’ll be working with the same lender for the entire life of the loan. Since you’ve already formed a relationship with them while you were buying the home, you’ll know exactly who to turn to in the event that you have a problem or a question regarding your mortgage.

Cons

The possibility of higher interest rates or fees

However, the flip side of the lender being able to set their own qualifying standards is that they’re also able to set their own rates and fees. You may be charged a higher interest rate or different fees in exchange for those looser qualifying requirements.

However, those higher rates and fees may be worth paying if you’re unable to get a mortgage otherwise. Don’t forget that you’ll still likely have the option of refinancing to a more traditional loan at a later date if you’re able to sure up your finances a bit.


Source link
Read also:
Business Insider › 1 month ago
Refinancing your auto loan could get you a lower interest rate or allow you to remove a cosigner from your loan, especially if your credit score has recently improved. Before applying for an auto loan refinance, you'll want to make sure that you aren't...
Politico › Lifestyle › 3 weeks ago
A. Wayne Johnson, who oversaw the department’s $1.4 trillion student loan portfolio, said he believes there are “fundamental flaws” in the nation’s student loan system.
Business Insider › 1 week ago
Over 45 million Americans have student loan debt, and it's affecting their ability to build wealth. One way to get out of debt is through the 2007 Public Service Student Loan Forgiveness (PSLF) program, which invites public sector workers to apply for...
The New York Times › Finance › 2 weeks ago
Real estate group Covivio Hotels is set to buy a portfolio of European luxury hotels from private equity group Varde, two sources close to the matter said on Wednesday.
Express › Finance › 1 month ago
LIFETIME ISAs and Help to Buy ISAs both offer a 25 per cent government bonus on savings put into the accounts. Can a person hold both a Help to Buy ISA and a LISA?
Business Insider › Technology › 6 days ago
Smart speakers and plugs are a great way to get started in the smart home world. For a limited time, if you buy a Google Nest Mini from Best Buy and Target, you'll get a free Belkin WeMo Mini smart plug. That's a savings of $29.99. The offer is valid...
CNBC › Finance › 1 month ago
Why buy new when you can buy refurbished, and why buy at all when you can rent?
Forbes › Finance › 0 month ago
A recent court decision may make it easier for student loan borrowers to hold their loan servicers accountable for misconduct. Here's everything you need to know.
Business Insider › 2 months ago
I've been getting offers in the mail to refinance my auto loan, and for the first time I'm considering it. My car loan has an interest rate of 7.34%, and I have $10,433 left to pay off. If I can refinance with better terms, I could save money now and...
Business Insider › 2 months ago
Buy-and-hold investing is a tried and true long-term investment strategy. As the name implies, buy-and-hold investing involves purchasing stocks or other securities and keeping them in your portfolio for a long period of time. Some investors argue that...
Sign In

Sign in to follow sources and tags you love, and get personalized stories.

Continue with Google
OR