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.