Purchase the home of your dreams your way using portfolio loans!
Portfolio Loans: Your Financial Goals, Our Priority
In understanding portfolio loans, we first must understand how they differ from a conventional mortgage loan.
Portfolio loans are non-conventional loans, meaning they do not meet traditional loan requirements set by Fannie Mae and Freddie Mac for conforming loans, non-conforming loans, and other conventional loans.
Because of this, a portfolio loan cannot be sold on the secondary mortgage market like a traditional loan; instead, portfolio lenders hold them in their own portfolio and do not usually resell them. They are often provided by boutique online lenders rather than banks, credit unions, and other financial institutions that offer more traditional home loan options.
Portfolio loans are also not backed by the federal government like FHA loans or VA loans. This means that if the borrower defaults, the portfolio lender won’t recoup its losses, nor will it be able to resell the loan.
As portfolio loans are not sold on the secondary market, portfolio mortgage lenders have more flexibility in their underwriting requirements than traditional mortgage lenders. This allows them to extend to borrowers who may struggle to get loan approvals for conventional mortgages. This includes real estate investors and self-employed individuals who may not have the documentation necessary for a typical mortgage.
Advantages of Portfolio Loans
Because portfolio loans work differently than traditional mortgages, they offer unique advantages that may not be available from the typical lender. You’ll get more flexibility, different options for income verification, tailored solutions for those with poor credit histories or unique financial situations, and less stringent qualifications.
Flexible Underwriting Guidelines
Portfolio loan requirements do not have to adhere to the same standards as traditional loans, such as that the repayment schedule can only be 30 years or less. Portfolio lenders can provide you with different loan terms, and they can also be more flexible with qualifications, as they don’t have to worry about adhering to the standards necessary to sell on the secondary market.
Alternative Income Verification Options
A traditional mortgage lender requires specific documentation, including tax returns, to underwrite a loan. This can be difficult to provide for a real estate investor or self-employed borrowers with alternative income sources.
Portfolio lenders originate loans with different income verification materials, such as bank statements or asset sheets. They can qualify borrowers for investment real estate financing based on the property's income-producing potential.
This is especially helpful for people from marginalized communities, who may be more likely to be independent workers. For example, a recent study of 300 sexual minorities, which includes gays, lesbians, and bisexuals, found that about 13% were self-employed, and approximately 30% had irregular employment. Transgender individuals are also more likely to be self-employed.
Similarly, 30% of all gig workers are Hispanic, while 27% are Black. These workers may lack the income verification necessary for a typical loan but can still access portfolio products.
Higher Debt-To-Income (DTI) Ratio Tolerance With a Portfolio Lender
BIPOC and LGBTQ+ individuals often have higher debt burdens than their peers, which can close them out of homeownership. This is especially difficult with student loan debt, which disproportionally burdens marginalized borrowers.
For example, Black graduates have approximately $25,000 more debt than their white peers, while 28% of LGBTQ+ adults said that student loan debt is their largest source of debt; another 11% said it was medical bills.
The debt-to-income ratio is a critical part of getting a conforming loan, and it typically must be under 36%. However, many portfolio loans will allow you to have a higher DTI, sometimes as high as 50%, depending on the other financial metrics in your application.
Options for Recent Credit Events
Bankruptcy and foreclosure are significantly more common in marginalized communities, which may contribute to their lower rates of homeownership.
Analysis of ZIP codes found that individuals from Black-majority areas were more likely to file for Chapter 13 bankruptcy than those in white-majority ZIP codes. This form of bankruptcy is more expensive and difficult, which drains resources and can make it even harder to qualify for financing.
Sadly, one-third of all LBQ women have faced financial challenges, including bankruptcy, in the past year, which poses challenges when seeking traditional home financing.
This doesn’t mean that purchasing property is impossible, though. Many portfolio lenders work with a wide array of borrowers who may not be eligible for most conventional loans, including those with poor credit histories.
If you’ve had a recent bankruptcy or foreclosure, a traditional lender may deny you, but a portfolio lender will look at the big picture and consider whether you can make your monthly payments with your current assets.
Tailored Solutions for Unique Financial Situations
Portfolio loans are an excellent choice for those who have non-traditional income, such as freelancer income, investment cash flow, or significant assets that can be used to pay the mortgage. A portfolio lender will consider your income streams as a whole rather than focusing only on tax returns.
Potential for Faster Approval and Closing Times
Because there is less investigation into your finances, it’s possible to close these loans faster. This can make all the difference for investors who are trying to break into a challenging market.
Types of Portfolio Loans
Multiple types of portfolio loans are used for various specific purposes. A loan officer from our team can help guide you to the right product for your financial goals, whether that is buying investment property or owning your own home.
Bank Statement Loans
Bank statement loans use your net income to identify whether you can afford your monthly payment based on your annual income. This is a good option for self-employed borrowers who may not have the financial documentation necessary for a typical loan.
Asset Depletion/Utilization Loans
This type of portfolio loan considers your assets, such as investments, savings accounts, or home equity, and assumes that you can liquify these to satisfy your mortgage debt if necessary. It’s a good option for those with significant assets but lower credit scores.
DSCR (Debt Service Coverage Ratio) Loans for Investors
Designed for real estate investors, DSCR loans assess the cash flow of investment properties by using the debt service coverage ratio. This divides the net operating income of the real estate by its annual debt service to create a ratio. A ratio of 1.25 is generally required, meaning that the home is making 1.25 times its mortgage and other expenses.
The benefit of DSCR loans is that they can be used to finance multiple properties at once, making them a superior option over conventional loans for investment.
Foreign National Loans
A bank or other financial institution will typically require proof of US citizenship or residency, which blocks foreign nationals from achieving property ownership in the United States. Additionally, the need for tax returns can make it hard for a foreign citizen to get a conventional loan.
With a foreign national loan, the portfolio lender will assess your creditworthiness by using income documentation from your country of origin, such as foreign tax returns.
Jumbo Loans
This type of portfolio loan is a conventional loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency. It has many of the same underwriting requirements as traditional loans but allows you to borrow more than would be possible otherwise.
To access this type of portfolio, you will need to have a high credit score and significant cash reserves, as well as a larger down payment than for a loan that can be sold on the secondary market.
Bridge Loans
These short-term loans are meant to “bridge” the gap between temporary and permanent financing. They often have much shorter terms than other loan types, as well as higher interest rates. You may be able to get a loan for as little as one year or less. Many also allow for interest-only payments until the end of the term, when you will pay off the principal.
Construction Loans
Many financial institutions have few options for those who want to build their own property. Construction loans are a type of loan meant to finance the upfront costs of building a home, and they can often be converted into a more traditional mortgage product once construction is over. You can roll both building and mortgage costs into the same loan.
Who Qualifies for a Portfolio Loan?
Portfolio lenders will keep your loan on their own balance sheet instead of selling the home loan on the secondary market as they would with a conventional loan. While this means that they have more flexibility than traditional lenders do, they are also taking on more risk, so they will have different risk thresholds.
You may need to have a higher credit score than would be necessary with a traditional loan, and there will be higher down payment requirements, sometimes as high as 20%. Thankfully, we have a selection of down payment assistance programs, including local, state, and national programs, that may match your needs. These can be loans or grants, depending on the program.
Additionally, portfolio lenders will often expect to see more bank statements than traditional lenders, typically ranging from 12 to 24 months.
Some portfolio loans come with prepayment penalties, which means you’ll need to pay an additional percentage of the principal if you pay a loan early. These penalties usually apply only for the first five years of the loan.
Higher origination fees are charged for portfolio loans, which are also meant to protect the lender. A mortgage broker like Pride Lending can help you compare these costs and find a loan with the lowest fees possible.
Lastly, portfolio lenders have a higher net interest rate spread, which is the difference between the interest rate they borrow for and how much they lend for. This means that you are likely to have a slightly higher interest rate than you would if you pursued traditional mortgages.
The Portfolio Loan Process With Pride Lending
Portfolio lenders work closely with the customers to negotiate the loan terms, meaning that you can often achieve better interest rates and terms than you would with another financial institution. Our team at Pride Lending will be here to offer you helpful advice and demystify the process, ensuring that your portfolio loan application is processed quickly and smoothly.
The steps to securing a portfolio loan are similar to other mortgages but with a few key differences.
Check Requirements – First, ensure that you understand the different products available and determine whether there is one that meets your particular needs regarding credit score, DTI, and other metrics.
Contact Pride Lending – During your loan consultation, we’ll review your profile and identify what might work best for you. Not every lender offers a portfolio loan option, so it's crucial to carefully review your options. We can help you find the best lenders available who offer competitive rates for the loan type you need.
Submit Your Details – Like with other loans, you’ll fill out a pre-approval form, which helps you stay competitive in your given market. This paperwork will ask for information about your income, which you can prove through bank deposits, balance sheets, a list of your assets, and investment details. Thankfully, Pride Lending makes this easy by allowing you to get preapproved online.
Get Preapproved and Shop for Properties – Having pre-approval demonstrates to sellers that you’re serious about the process and are likely to follow through. Once you are preapproved, you’ll know your budget, and we’ll send the details of your preapproval to your realtor.
Find a good realtor who is familiar with your specific needs, whether that is investing or homeownership. If you are an investor seeking a DSCR portfolio loan, make sure to do your homework on the property itself, specifically its expected rental income and potential return on investment. This will make up a significant component of whether you are approved.
Submit an Offer – You and your realtor will determine what you believe is a competitive offer and write a letter to the seller.
Apply for a Portfolio Loan—This often requires much of the same information as was necessary for preapproval, though some loans will ask for more details about the property itself to determine its return on investment.
Offer Acceptance – The seller will let you and your realtor know when they accept your offer, and you will sign a purchase contract. At this time, you can schedule an inspection of the home.
Inspection—This can uncover any potential issues with the home that may reduce its resale value and make it a risky investment. If there are major problems with this property, you may not be able to access a portfolio loan even if you are a well-qualified borrower.
Conditions – If you’re happy with the inspection results, you can move on to the next step, which includes reviewing the conditions of the purchase contract with our team.
Underwriting – We’ll submit all the information gathered thus far to the lender, who will then have an underwriter from their company investigate the fine details of the deal. During underwriting, the lender will double-check all aspects of your application, such as your credit history, income, and the property’s market value. A portfolio loan is often approved much faster than other loan products, sometimes in less than a month.
Appraisal – The lender wants to ensure that they are not financing an overpriced property, so they will require you to undergo an appraisal. Rental properties may require more than one appraisal. This will be returned to the underwriter for another look.
Clear to Close – If everything goes well during the underwriting, you will be fully approved for the loan. Our team will schedule the closing, and you will get information from the lender’s title company on how to send the closing cost and down payment funds, typically done by a wire transfer.
Closing – The funds for the home will be dispersed at closing. At this time, you’ll provide your down payment and closing costs, go over the loan disclosure with the lender, and sign the paperwork to officially take ownership of the property. The title is now yours, and you are now a homeowner!
Why Choose Us as Your Portfolio Lenders?
Pride Lending is the first LGBTQ-oriented mortgage company passionate about helping borrowers from all walks of life get the right product for their specific needs. We have deep experience in portfolio loan options and can guide you to the right solution for your financial goals, whether that is investment or homeownership.
Pride Lending’s team is composed of allies and members of marginalized groups, including LGBTQ+ and BIPOC individuals. We’re here to help everyone, regardless of their identity or background; we offer inclusive and friendly service for all our clients.
We seek to make it easier than ever to access financing through our streamlined processes, including in-house underwriting. We’ll also take the time to get to know your needs and demystify the process for you so that you’re fully confident with your lending options. You’ll get access to the best interest rates, lowest origination fees, and the most advantageous terms based on your specific borrower profile.
Our company is a Certified LGBT Business Enterprise recognized by the National Gay and Lesbian Chamber of Commerce, and our owner was recognized as the 2022 National Association of Mortgage Brokers (NAMB) Broker of the Year. When working with Pride Lending, you can be assured of trust, transparency, and a stress-free process.
We’re Here To Help With Your Portfolio Loan
If you’re ready to explore your portfolio loan options, get in touch! Get pre-approved today, or contact us to learn more about your easy, hassle-free home financing options. We look forward to assisting you in meeting your homeownership goals.
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