Portfolio loans are perfect for people with unique circumstances who do not qualify for traditional financing. Portfolio loans are a step beyond unique.
In this video I cover the basics of portfolio loans, and who might be a good candidate.
The idea of a portfolio loan is to provide a way for people to be homeowners even if they don’t fit within the strict lending guidelines of today’s mortgage world. Traditional loans like Conventional, FHA, VA, USDA, etc. have become so heavily regulated that many times borrowers are denied for simple technicalities.
A portfolio loan is a common sense loan.
It’s really an opportunity to be considered from a human being standpoint instead of being treated like a number. It’s the way mortgages should be.
The main advantages to portfolio lending are, if you get approved:
- You now have an alternative to renting.
- You have an alternative to being limited to land contract homes.
- You have a chance to get into a home of your own when everyone else said it was impossible.
When you consider it from that standpoint, portfolio loans are truly a breath of fresh air for folks who are legitimately ready to be homeowners again.
I’m not sure there has ever been a better time for portfolio loans to be offered. We’re in the middle of rebounding from one of the worst recessions in our history. Particularly, a recession that some (many/most) would say was a direct result of the housing market bubble burst.
So because the real estate and mortgage approval process was abused for years, we’re at a point where there is extremely high regulation when getting approved for a mortgage. So much regulation that good people, who are back on their feet, still can’t get approved.
Let’s look at 2 examples of when a portfolio loan may be the best/only option for getting back to home ownership.
- Mr. Johnson has worked for a major automotive company since 1986. He bought his first home 15 years ago. Before the recession he was making $105,000/year. In 2008 he was faced with a tough decision: take a 50% cut in pay, or go find another job. The job market was non-existent unless he wanted to start at $12/hour. After taking the pay cut with the company, his lifestyle had to be adjusted significantly. He tried to sell his home but he was underwater on it. After depleting all of his savings over a 12 month period he started missing payments. 6 months later he was faced with foreclosure. The foreclosure was devastating, but there wasn’t anything he could do. He lost his home and was forced to live with family or rent. A couple years later his company was able to give him a raise. He regained confidence and was able to start putting some money into savings every month with the plan to buy a house.What he didn’t realize was that he needed to be re-establishing his credit in the meantime, and he had not done so. After two years of being back on his feet he still couldn’t qualify for a traditional loan because he had not re-establish his credit, and he had a small collection that was lingering which he was unaware of. He was told he would have to wait at least 2 more years. Then he found out portfolio loans existed. Mr. Johnson was able to get looked at from a common sense perspective. Treated like a human. He finally was living the American dream again.
- Ms. Smith was what you would call a “perfect” borrower in terms of mortgage qualification. She had been with the same company for over 10 years. Her credit was spotless. She even had 10% set aside for down payment. When she found the home of her dreams she made an offer and the offer was accepted the same day. Her lender ordered appraisal, got her through underwriting, and even told her to start packing. A week before closing she got a call from her lender, saying that the condo she was buying was considered to be a “non-warrantable” condominium. Naturally she was confused. Her lender explained that because the condo was still under construction, and a certain number of units hadn’t been sold in the complex yet, she couldn’t close. She of course was devastated. Ms. Smith searched for solutions online, looking for financing for non-warrantable condos. She found a portfolio lender she liked, and they ended up closing it for her. They were even able to use the appraisal that was already done.
There are countless examples that call for a portfolio loan.
It’s good to remember that portfolio loans are a temporary fix, for temporary circumstances. A few things to keep in mind when looking at portfolio loans:
- 10% down minimum
- No PMI (mortgage insurance)
- Income and assets must be verifiable
Here are some specific examples of when a portfolio loan will be worth looking into:
- Recent bankruptcy, foreclosure, short-sale
- Bad divorce ruined credit
- Self-employed less than 2 years
- Foreign national with no established credit
- Buying unique property
- Any unique scenario where traditional financing is not an option
The most important thing you can do is try. If you are told you cannot buy a home because you don’t meet normal guidelines I encourage you to reach out. If it’s not me, reach out to a portfolio lender who you think might be a good fit for you.
Be prepared to provide as much financial information as you can in order to set yourself up for success. Tell your story and be upfront. The last thing you want to do is withhold important information from your lender. The sooner you disclose everything, the sooner a solution can be visited.
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