Revisiting Portfolio Loans

December 13, 2012

It’s been interesting this year looking at the search terms people use to find this blog. Aside from those looking for me specifically, or searching “Cambridgeville,” it seems the two most common searches that lead people here are regarding multiple-offer scenarios and portfolio loans. Since these seem to be the hot topics of the day,  I thought it would be worth reposting both articles, starting here with a Q&A on portfolio loans. I’ve added a couple additional points, which appear bracketed in blue text.

Mortgage Savvy: The Skinny on Portfolio Loans (originally posted October 29, 2010)

Many people manage to go through life without ever needing a portfolio loan. That said, there are many home-buying scenarios in which a portfolio lender may be your only financing option. With that in mind, I’ve put together answers to some typical questions on the subject. If you have any others, just let me know and I’ll add them to the list!

Q: What exactly is a portfolio loan?

A: A portfolio mortgage loan is one that a bank holds onto as an investment, rather than selling it off on the secondary market (Fannie, Freddie). [Banks offering portfolio loans are almost always smaller, local banks.]

Q: When are portfolio loans necessary?

A: Portfolio mortgage loans may be necessary in two general circumstances:

1) Your credentials as a buyer do not meet the underwriting guidelines set by the secondary market (e.g., your credit score is too low, insufficient income); or

2) The home you want to buy does not meet the underwriting guidelines. When this comes up, it is generally in a condo situation. For example, you may need a portfolio loan if the condo you want to buy…

…is one of the first units sold in a new condo conversion

…is in an association where more than 20% of the building’s gross living area is commercial

…is in an association with too few owner occupants (owner occupancy requirements vary by the size of the association)

…is in an association where one person owns more than 10% of the total units

[Homeowners selling a condo that falls into any of these categories need to be aware of this fact so that they and their agent can fully vet potential buyers to make sure they are willing and able to finance with a portfolio loan.]

[Construction loans are also a form of portfolio loan, required when a house is in such rough shape that it is not conventionally financeable. For example, it lacks heat, doesn’t have a functioning kitchen and/or bathroom, or is otherwise uninhabitable.]

Q: Are the terms different for portfolio loans?

A. Yes! Portfolio loans [generally require at least 20% down], have slightly higher interest rates and are often adjustable rate loans (though some lenders do offer fixed-rate loans). Your closing costs may also be higher if you get financing through a portfolio lender.

Q: How can I find a portfolio lender?

A. Very few banks offer portfolio loans, and the funny part is that even those who do don’t seem to advertise the fact. [Recently, some banks who had offered portfolio loans have stopped for various reasons.] Lenders who do offer portfolio loans are often motivated by one of two reasons: either because they have a relationship with the borrower or because they have lent money to a developer and want to make sure they are repaid, so they help buyers to finance the properties.

If you are interested in a particular property that will require portfolio financing, talk to your buyers’ agent. She can probably point you to a lender that can help. Also, sometimes listing agents will have already sourced a lender or two who is willing to provide financing, particularly in cases of new development/condo conversions.

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