Portfolio loans may be a suitable financing option if you're struggling with one of the biggest hurdles to buying real estate: getting a mortgage loan.
In recent years, the qualification process for getting a real estate loan has become stringent. It's becoming more challenging to qualify for a VA loan, FHA loan, and even conventional loans.
For those unable to qualify for traditional loan programs, portfolio loans may be a good option. Read on to learn what a portfolio mortgage is, how it works, and when it may be a suitable option for financing real estate.
What is a portfolio loan?
A portfolio loan is a mortgage loan originated by a bank and held in the bank's portfolio over the life of the loan. These loans don't have the stringent requirements of FHA or VA loans, so banks can't sell them on the secondary market. This can help borrowers get approved more easily.
Traditionally, banks create or underwrite loans according to a set of standards outlined by the government. They require a loan to meet a minimum requirement of credit score, debt-to-income ratio, down payment amount, or loan limit, among other criteria.
They follow these criteria so they can sell the loans on the secondary mortgage market, typically to government-sponsored entities (GSEs) like Fannie Mae or Freddie Mac, to recapitalize their money so they can create more loans.