A portfolio loan is a type of loan that a lender will keep in their portfolio instead of selling on the market. This way, the company benefits from all the interest payments made as the loan is repaid. Lenders making a portfolio loan can sometimes also create their own loan programs and terms. For this reason, you may consider this type of loan product if you are struggling to finance your home via a more conventional program. Many times, people find credit unions and small banks offering unique loan products.
The Portfolio Loan Process
If you apply for a portfolio loan, then your home may undergo a process of manual underwriting in order to meet the unique terms of the borrower. This will certainly be the case if you do not possess the documentation and standards needed to meet automated underwriting software requirements. Wealthy borrowers may demonstrate their ability to repay a portfolio loan through businesses owned and other assets, for instance. A bank may offer you a portfolio loan with negotiable terms in order to keep your business with their company in this case.
Portfolio Loan Benefits
One of the benefits of using a portfolio loan is that you will do business with the same, typically small, bank throughout the life of your loan. You may be able to build a more trusting relationship and access more personalized customer service. Another benefit is that you may not meet standards required for documentation in conventional financing programs, such as an FHA loan. In this case, you will want to apply for a portfolio program to qualify.
Some also see the benefit of using a portfolio loan for fix and flip properties. You may have a high debt-to-income ratio or some short sales in your credit history. The lender may be more comfortable with taking the risk if they use an underwriting process that can solidly demonstrate you will still be able to repay the home debt.
Portfolio Loan Pitfalls
As they come with additional risk, there may be pitfalls to using a portfolio loan. There may be higher interest rates and fees associated with this type of product. This will result in larger down payments or monthly payments until you can refinance the loan to better terms. Sometimes you will also be asked to sign documents with waived consumer rights requirements or unusual terms. Be sure you review your loan terms very carefully. You will want to review any penalties associated with taking certain actions on the loan.
The staff at Professional Mortgage Solutions hope you enjoyed learning more about today’s topic of Portfolio Loans and welcome you to contact our Rego Park, New York offices with any additional questions.