What Is a Portfolio Loan?

When searching for a home and a mortgage there are several options afforded to consumers. There are times when traditional mortgage options such as conventional, FHA, VA and USDA may not work. There is another option which could work which is a portfolio loan.

A portfolio loan is simply a mortgage loan a lender provides but instead of selling it into the secondary market they hold it and typically will also service it. Typically, think of the lender using their own funds for this type of transaction. Because the lender is holding the mortgage, they can set the qualifying terms and underwriting conditions to obtain the loan and they are typically more flexible.

Traditional mortgages require certain minimum credit scores and debt to income ratios and more rigid down payment requirements. This is not necessarily the case with a portfolio loan. Because these lenders are more flexible the offset is there will be slightly higher rates and fees. It only stands to reason that this is the case because they are holding the paper and there is slightly more risk.

Most self-employed borrowers should and do utilize these portfolio offerings along with consumers who might have lower credit score or challenged credit. The one thing you want to watch out for is whether the loan has a prepayment penalty. You would want to avoid that if possible.

As always, consult with a trusted mortgage professional such as the Home Loan Advisors at Hall Financial to learn more about your options.