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Breaking Down Barriers to Homeownership: Understanding Portfolio Loans

Are you struggling to secure a conventional or government-backed home loan? Perhaps you’ve recently made a significant career change, such as switching to self-employment, and are now facing challenges in finding a lender. Fear not – alternative financing options, like portfolio loans, can help you achieve your dream of homeownership.

What is a Portfolio Loan?

A portfolio loan is a type of mortgage that remains on the lender’s books instead of being sold to a government-sponsored enterprise (GSE) like Fannie Mae or Freddie Mac. This means that portfolio lenders have more flexibility in creating their own guidelines and making exceptions for borrowers who may not meet traditional underwriting requirements.

How to Get a Portfolio Loan in 4 Steps

1. Research and Meet with Multiple Loan Officers: Reach out to various loan officers to explore your options and find the best deal for your unique situation.
2. Get Preapproved and Fully Underwritten: Work with your top loan officers to get preapproved and fully underwritten, ensuring you understand the rates, fees, and pros and cons of the loan product.
3. Negotiate the Terms: Advocate for yourself to secure a good deal, and try to negotiate the early pay-off fee to allow for refinancing into a traditional loan in the future.
4. Close the Deal: Once approved, sign the paperwork, make your down payment, and finalize the transaction.

Pros and Cons of Portfolio Loans

Pros:

• Potential access to financing when traditional options are unavailable
• Opportunity to build equity and improve your financial situation
• Stable relationship with the same mortgage lender throughout the loan term

Cons:

• Potentially higher interest rates and fees than other mortgage types
• Higher down payment usually required
• Significant cash reserves or assets may be necessary to qualify

Is a Portfolio Mortgage Right for Me?

Portfolio loans may be suitable for individuals who have recently experienced a major life change, such as bankruptcy or divorce, or those with significant assets rather than verifiable W-2 income. However, if you can qualify for a traditional mortgage, it’s likely a more cost-effective option.

The Growing Popularity of Portfolio Loans

According to the Urban Institute, portfolio loans accounted for over 31% of mortgage originations in Q3 2024. This growth is attributed to rising home prices, an increase in self-employed professionals, and the need for alternative financing options.

Refinancing into a Portfolio Loan

Yes, you can refinance an existing mortgage into a portfolio loan. This may be beneficial if you can secure a lower interest rate but don’t have recent tax documentation that meets traditional underwriting guidelines.