Here’s the deal… there is no such thing as a cookie cutter scenario when it comes to home financing. Whether it’s FHA, Conventional, Jumbo, VA, USDA, etc… everyone’s situation is different.
Portfolio loans are a step beyond unique.
Portfolio loans are designed to get folks approved when they are not eligible for any “normal” type of financing. These types of mortgages are commonly funded by small banks or credit unions, and are kept in their “portfolio”. The reason portfolio loans are typically found at local banks or credit unions is simply because these companies are more home-grown than your common mega lender. They have every reason to help their local economy grow. They know that if they give a borrower a chance when no one else will, they will be a loyal client for life. Small banks and credit unions are built more around relationships than any lender you’ll find. They are willing to take the risks because they look at the whole picture of a borrower’s situation.
Getting a portfolio loan is more of a common sense type of approach to mortgage lending, unlike your conventional/FHA mortgage that is pretty much a check-in-a-box, black and white type of approval process. With a portfolio loan, the story matters.
When is a portfolio loan necessary?
Recent Credit Issues – Many times a portfolio loan is called for when a borrower has damaged credit. Maybe their credit was ruined because of a nasty divorce. Maybe their credit was ruined due to an injury. This would have an impact on their ability to earn for 12 months. Sometimes this forces foreclosure, possibly bankruptcy. Really any situation where the borrower was in a rough patch, but now is back on their feet.
You see, with any normal type of mortgage, there is a waiting period you have to meet before being able to buy a house. Usually it’s at least 3 years before you can do anything if there was a recent bankruptcy or foreclosure. But should it really be that way if the situation was truly temporary, and the borrower is back on their feet? The answer is no. The result, Portfolio Loans.
Examples of recent credit issues:
- Ex-spouse ruined credit during nasty divorce
- Piled up medical bills
- Misc. collections
- Tax lien
- Low credit scores due to high credit card balances
- Late payments in last 24 months
Unique Property Type – Sometimes the property that the borrower is looking to buy or refinance is particularly unique. So unique that it does not meet the necessary guidelines to be eligible for conventional, FHA, etc. financing.
This is common with condominiums because the homeowners association gets a full review by the lender to determine its financial stability. Many times condos are deemed “non-warrantable” because the complex or homeowners association does not meet the Fannie Mae, Freddie Mac, or FHA condo guidelines. [full article on Non-Warrantable Condos here…]
Examples of why condos are sometimes deemed as non-warrantable:
- Homeowners association has a lack of reserves
- Inadequate insurance coverage
- Inadequate flood insurance coverage
- Too many units are tenant occupied (renters)
- The complex is under construction or in a phase that calls for more construction
- Too many units are owned by 1 person or entity (investor owns high percentage of units)
Other unique properties that may call for a portfolio loan:
- Commercially zoned property that is being used as residential
- Berm home
- Log cabin (if not typical in the market)
- Any type of home that an appraiser has a difficult time finding comparables for (recent sales of similar homes)
Foreign Nationals – When folks move to the US and want to buy a house right away, they are commonly faced with 2 major problems: they don’t have credit established in the United States, and they do not have income established in the United States.
This is a perfect opportunity to pursue a portfolio loan. There are some main things the borrower would want to provide if they are a looking to get a portfolio loan, and are new to the United States.
A foreign national would want to provide:
- Type of VISA, and all VISA applicable documentation
- Previous 2 year income history in previous country (paystubs/tax returns)
- Asset statements
- Letter explaining intent to stay in the US
- Proof of income established in United States (employment letter, paystub)
Investment Property Loans – Most real estate investors reach challenges when attempting to expand their real estate portfolio, and are looking to finance those new investments. The general assumption is that their only option is to get a hard money loan or buy the new home cash.
That is not true in this market. With a portfolio loan, you can have an unlimited number of financed properties. What’s more is that these types of scenarios are approved based on property cash flow, not borrower income circumstances.
That would make sense wouldn’t it?
To approve the property based on cash flow? Since the rental income will be paying for the mortgage/taxes/insurance/association dues, the deal is evaluated based on fair market rent. These are done on purchase, refinance, and cash out refinance loans.
These types of rental property loans are phenomenal for seasoned investors who are looking to grow their real estate portfolio. [full article here…]
Unique Income Circumstances – We often see borrowers that are financially stable, have great credit, solid assets, but don’t qualify for a mortgage due to a simple technicality regarding their income situation. This is another great opportunity to explore the possibility of getting a portfolio loan.
Keep in mind, portfolio loans are not necessarily “stated income” loans, where the borrower tells the lender how much they make, and all is well (like the old days before the housing meltdown). Portfolio loans are still full documentation loans, but are looked at from a common sense standpoint.
For example, let’s look at 1099 employee. These are folks that typically are considered “private contractors” and are given a 1099 at the end of the year to show earnings (instead of a W-2 like most employees). In this case, lenders need a 2 year history receiving that type of income. The reason for that is 1099 employees will sometimes have some unique write-offs on their tax returns that could possibly have an impact on what their actual net earnings are.
The problem with this is that many times 1099 employees are paid on a salary or set amount of income for a set amount of time. So basically, the borrower is guaranteed $X for the next X number of months, but can’t use that income to qualify because they don’t have a 2 year history of being a 1099 employee? Does that make sense? Heck no! Especially if that individual has worked in that same line of work in the past and has a degree in that field.
The reality is that these scenarios are fairly common, and people think they are stuck until they get a breath of fresh air (portfolio loan).
If you are looking for a second chance…
A portfolio loan could be the perfect fit for you. I talk with folks every single day, all over the country, who are seeking a common sense type of approach to mortgage approval. If I am unable to help, I usually can point them in the right direction at the very least.
You won’t be talking with my assistant, or some loan officer who is dabbling in mortgages. You’ll be talking with me directly. If I can help, awesome. It will be an honor. If I can’t help, I’ll do everything I can to connect you with the right lender so that you can accomplish your specific home ownership goals.
Main items to keep in mind when seeking a portfolio loan:
- Available on purchase or refinance.
- At least 10% down (no PMI).
- Down payment may be gifted if you have at least 5% of your own funds.
- Income and assets must be verifiable.
I invite you to reach out to me.
Get your questions answered.
If you or your clients are in any type of unique scenario, please feel free to reach out to me directly for an opportunity to get approved for a portfolio loan. 248-894-2763
Adam Lesner NMLS 198818 | Mackinac Savings Bank NMLS 401686 | Main offices in Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Ohio, Oregon, Tennessee, Virginia, Wisconsin.