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Is a Portfolio Loan a Good Option?

Not What You Think

When you hear terms like hard money, or private money, or portfolio loan, many people think about high interest rates, high fees and subprime loans.

The truth about these types of loans is that they serve a very specific and much needed purpose in today’s post market crash world of home loan financing.

When it comes to high rates and fees, you have to put this into perspective.  Today’s interest rates are historically, very, very low.  If you also look at that same history, portfolio lending rates and fees are also at historical lows.

You might be surprised at the variety of options, and relative affordability of portfolio loans today.

Why Use a Portfolio Loan?

Bad things happen to good people all the time, especially if you take into consideration the economic turmoil of the last 7-9 years.  It’s these temporary hardships that prevent otherwise qualified, responsible and capable borrowers from financing your next real estate purchase, or refinance.

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Time cures all financial hardships, and time also diminishes the return on investing in real estate.  The most significant reason for using a portfolio loan is to shorten that time that you’re out of the market while you’re waiting out the timeline until you can secure more traditional, lower cost financing.

While the upfront costs, and interest rates do tend to be higher than traditional and conventional financing options, when you consider the fact that you’re only “renting” this money for a short period of time, the numbers will speak for themselves.

When you compare the cost to borrow money to purchase a home, with the cost to borrow money for almost anything else, home loan interest rates are significantly lower than most installment loans or credit cards.

Most purchases you will use financing for will never appreciate in value, provide shelter, or build wealth.  When you put all of these factors into perspective, it is difficult to argue with the fact that even though it’s a little more expensive up front, the return on this investment is difficult to match.

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Common Uses for Portfolio Loans

One of the greatest benefits of portfolio lending is the wide range of unconventional scenarios and terms available.  Common reasons for using a portfolio loan include:

  • Buying a home after bankruptcy, short sale or foreclosure
  • Self employed borrowers
  • Foreign nationals
  • Cashflow qualifying investment loans
  • Second mortgages
  • High net worth, low documentable income
  • Fixing and flipping
  • Anything that falls outside of conventional guidelines

Long Term Investment Strategy

Purchasing real estate, whether to live in as your primary residence, or even buying an investment property, is a long term wealth building strategy.

There are very few investments that are as secure, and provide returns like you will see with real estate.  While most home buyers are mainly concerned about rates and fees, only financially minded buyers truly understand and appreciate the bigger picture, and the importance of getting in, by any reasonable means necessary.

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The reality is, most people will refinance, or sell and buy again before they will pay off a 30 year mortgage.  You have to think about buying real estate as a long term investment.

If you own real estate for 20 years, chances are you will borrow against it many times over that period of time.  When you compare the initial price to the long value, and then consider the total cost of the money borrowed against that property over that same period of time, you will be amazed at how far ahead you will be on this investment.

Even if you have to borrow money on a temporary basis at a higher rate and fees, by the time you factor in the tax savings, and equity growth over the long term, you will instantly see that a long term vision will give you a significant return on your investment.

Getting the Best Rates and Fees

Non-conventional lending programs are best if you have good to excellent credit, are financially stable, have significant equity, or down payment, but have circumstances that prevent you from qualifying for traditional financing programs at this time.

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For homebuyers, if you have a 700+ FICO score, and a 20% down payment, you might be surprised at how affordable a portfolio loan can be.  It is not uncommon for interest rates to range from the low 5% range, all the way up to 8% to 9% range for second mortgages.

Making the Right Decision

Let’s face it, nobody wants to overpay, that’s not what we are talking about here.  You have to be in a position to refinance out of a portfolio loan within 1 to 3 years, or the cost of this loan may create too much financial stress on your family.

When you put portfolio loans into perspective, it’s a short term solution that allows you to take advantage of a long term investment opportunity.  At the end of the day, it has to make financial sense, and you have to have the ability to be in a better financial situation in a reasonable amount of time.

When does it make financial sense? What is a reasonable amount of time? What are reasonable rates and fees?  Every situation is different, and everyone has their own financial goals.

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Review your scenario with an experienced lender that has the ability to offer portfolio loans and traditional financing.  Don’t approach this type of loan as an act of desperation, but as an educated decision, and a means to a long term financial end.

If you’re having trouble finding a lender that you are comfortable having this conversation with, feel free to leave your comments or questions below, and I will do my best to point you in the right direction.

Portfolio FP

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About Your Expert

Scott Schang

As a 18 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

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  1. Sally Litvin on August 2, 2017 at 6:19 pm

    I just found the answer. I need to wait and get my 15%down
    This is a great forum!!!

    • Scott Schang on August 2, 2017 at 10:21 pm

      Hi Sally!

      I’m glad you found the answer. That 15% is common, you may be able to find a loan with as little as 10% down depending on the circumstances for needing a portfolio loan.

      If you’re 100% that you need a portfolio loan, I can introduce you to someone that has experience with those programs. If you’re not 100% sure what you qualify for, I’m happy to give you my .02 if you want to email me the details. My email is scott@findmywayhome.com.

      Hope this helps?

  2. Sally Litvin on August 2, 2017 at 6:14 pm

    Hi Scott,
    Is it possible to get a portfolio loan with 10% down?

  3. Leslie Flor on June 18, 2017 at 8:44 pm

    Hi Scott,
    My husband and I are recovering from a divorce. We would like to purchase new house but do not qualify for a Traditional mortgage due to low credit score. My husband makes $200k, we have 25%down payment and cosigner. Do you think we could qualify for a portfolio loan? Any insite would be appreciated.

    • Scott Schang on June 18, 2017 at 8:57 pm

      Hi Leslie,

      It sounds like a portfolio product may offer some options. The first thing I would do though, is address why the credit scores might be so low.

      I have an expert network of lender friends that have experience with these guidelines. If you would like an introduction, send my your best contact information and State you’re buying in to scott@findmywayhome.com

  4. andy on June 17, 2017 at 6:07 am

    Hi Scott,
    I am a real estate investor with 5 rental property (plus my primary residence) I have 780+ credit score and am looking for Portfolio Lender in Raleigh, NC area

    • Scott Schang on June 17, 2017 at 11:47 pm

      Hi Andy, I’ve got a good friend in that part of the Country that might have access to programs that will help.

      I’ll send you an email in a moment with an introduction.

  5. Chet Smith on June 15, 2017 at 7:07 pm

    Hello Scott – I am self employed but have only owned my business for a year and a half which means I can only provide 1 years tax return. I have credit in the 700 range and 5-10% down and once I sell my current home (South Carolina) I will payoff approx 50k in debt leaving only one leas payment of $326 so my debt to income ratio will be strong. I have never had a bankruptcy. My only flaw is I am self employed (DON’T GET ME STARTED!). I am looking in the $270,000 range and was curious what options (if any) exist for me and what to expect in terms of rate, length of loan and down payment. Thanks in advance.

    • Scott Schang on June 16, 2017 at 9:54 am

      Hi Chet,

      I completely understand your challenges with self employment, I’ve been self employed my whole life. While self employment guidelines are loosening, and only 1 year tax returns are required in most cases, you still have to show a 2 year history of being self employed.

      There may be hard money lenders out there that will ignore this, but you have to expect just under double digit interest rates and 35% to 40% down payment most likely.

      Personally, I would wait out the 6 months and apply for a conventional loan at the 2 year mark.

      I do have a very creative lender friend in SC that I would be happy to introduce you to. He may have some ideas that I don’t know about, and at the very least, he can help once you approach the 2 years.

      If you would like that introduction, shoot me an email with your contact information to scott@findmywayhome.com

      Hope this helps?

  6. Kimberly R Eggert on June 12, 2017 at 10:17 am

    Hi Scott, we’ve spoken before:
    Long and short of it is, CH 13 filed in 2011 in an attempt to modify a mortgage after job loss – no luck and continued unemployment after 3 years, so conversion to CH 7 to end BK proceedings and unload the house causing the hold-up. Official discharge granted in Mar 2016, however, my hangup was that my husband and myself were both still on our surrendered property’s deed. We were finally able to track down the note holder (not Bank of America, who held our original mortgage – we were sold out after discharge), and DIL in April 2017 and have found a property we LOVE – any reputable portfolio lenders in NJ?

    • Scott Schang on June 12, 2017 at 10:23 am

      Hi Kimberly,

      I made an introduction to a very good lender friend of mine in NJ. He has a very experienced portfolio lender friend that he’s sent several people to with great success.

      It’s a good place to start!

  7. Harold on June 1, 2017 at 3:21 pm

    I am about 4 years out of a DIL (August). We are currently in a home with an FHA, but would like to move up. Reading a lot about portfolio loans. Do you know a contact in Tennessee who may be able to help, or even an 80-10-10?

    • Scott Schang on June 1, 2017 at 4:15 pm

      Hi Harold,

      What are you planning on doing with your current home? At 4 years, you would be eligible for conventional financing. An 80/10/10 or a 90% conventional would work. If you’re moving more than 100 miles from your current home, or are selling the current home before buying the new home, you may also still have FHA as an option.

      I can definitely connect you to someone that can help in TN. Keep an eye on your email for an introduction

  8. Carle on April 29, 2017 at 3:16 pm

    Unfortunately my home recently was foreclosed, not because I could not afford, but because I forgot to make the payments. I had a family issue which led to a death. Now a family member wants to purchase my home for me and I also want to know if i would be eligible for a portfolio loan and what rates would i be looking at? Can you steer me to any company that services WV?

    • Scott Schang on April 29, 2017 at 7:48 pm

      Hi Carle,

      I do have a lender that I can introduce you to. A portfolio loan less than 1 year from a foreclosure will require a minimum 15% to 20% down payment, and you can expect that the interest rates will be between 8% and 9%, plus closing costs of potentially 1% to 2% of the loan amount.

      If you think that’s something that would work for you, send me an email with your contact information to scott@findmywayhome.com and I will make the introduction.

      Hope this helps?

  9. Anthony on April 5, 2017 at 4:57 pm

    Hello, I am trying to become a first time home buyer. I am in Taos, NM. I am prequalified with a lender for first time home buyer loans. I have been searching and finally found a property I really want. I am told because the property has 1996 doublewide with additions and a separate 1,280 sq ft residential home site on the same 2.66 acre parcel it will only qualify with a specialty portfolio lender. Is that true? Additional, the doublewide is on a permanent foundation but the owner has not filed the paperwork to make it official. I add that in case that matters in anyway. Any helpful information would be appreciated.

    • Scott Schang on April 5, 2017 at 7:43 pm

      Hi Anthony,

      I have done purchases like this before where the doublewide is not given value on the appraisal, and is not really considered in the finance. A mobile would be considered personal property, not real property, and therefore not part of the sale (technically).

      I don’t know the details, so I could be completely off here, but I think you have a single family, 1,280 sq ft home with out buildings on the property. That’s how I would approach it.

      If you would like, I can introduce you to a lender friend that I know that is very creative and very experienced. You could always get a second opinion?

      If you would like an introduction, I can send you an email. Is that ok?

  10. Bart on April 1, 2017 at 4:19 am

    Scott, do you have any ties to portfolio lenders in south Louisiana?

    • Scott Schang on April 1, 2017 at 2:39 pm

      Hi Bart,

      I do have a guy that’s licensed in LA that is pretty familiar with some really good portfolio loans. These are not hard money loans, they are higher risk, and higher rate, but are quite flexible and reasonable in most cases.

      I’ll make an introduction by email. Talk to him, see if he can answer your questions.

      Hope this helps?

  11. santosha g on March 13, 2017 at 6:18 pm

    hi..had a shortsale sept 3 2015..is there a way to buy again without waiting the three years..I hate renting!!!!

    • Scott Schang on March 14, 2017 at 10:18 am

      Hi Santosha,

      Yes, there is a way if you have a 20% downpayment. The short sale was not included in a bankruptcy by any chance, was it?

      If you have the 20% down, shoot me an email to scott@findmywayhome.com with the State you’re buying in. I will see if I can introduce you to someone that has experience with those programs that can help answer your questions.

  12. James and Audrey Fulton on February 10, 2017 at 12:32 pm

    We were just discharged from bankruptcy Jan 23, 2017. We had little to no personal debt. The reason we had to file was because of the personal guarantees we both signed with our oil and gas company that plummeted with the oil prices. We are still doing business, but as a contractor under another company. We have the same client that we have had for 6 years. My husband James is running the oil and gas paint division and I started working again last May as a PRN Radiation therapist. I get paid $50 an hour and his varies according to profitability of job which is around 50%. We didn’t expect to have to file and were hoping to not be still renting at this point in our lives. My credit score is 670 and My husband’s is 645 according to Credit Karma. The day before bankruptcy I was 750 and my husband was 725. What are our chances for getting a portfolio loan? What percentage will we have to have as a down payment? and What kind of interest rate would we be looking at?

    • Scott Schang on February 10, 2017 at 2:08 pm

      Hi James and Audrey,

      I’ve been having this conversation a lot lately, and I think I look at portfolio loan options a little differently than most people do. With a 645 credit score, and the bk less than 2 years old, you’re looking at an interest rate of around 8% to 8.5% with 20% down payment.

      Most people would choke on that rate, but I see it this way. Even if you didn’t have the BK, you’re looking at a rate in the 4% range. So you’re paying a 4% premium. I’m not sure what price range you’re buying in, but at a loan amount of $300,000, you’re looking at an interest deduction of about $13,500. That will increase your payments a few hundred dollars a month.

      Now compare that to doing nothing. You have a cost on one hand, but on the other hand, you are missing out on earned equity, forced savings by paying down principal balance, and the tax deductions from both the interest and property taxes. Also, how much will interest rates be in the future? And how much will home prices rise in the future?

      The reality is, nobody can 100% answer the questions of rate and home prices, but history tells us that both on the rise.

      At the end of the day, it’s a math question. Can you afford it? And does it make financial sense.

      Hope this helps?

  13. Jessica on February 6, 2017 at 4:18 pm

    how would i go about finding a bank that does portfolio lending? i live in oregon, just filed bankruptcy and have a 3 yr seasoning period. could yo point me in the right directions

    • Scott Schang on February 10, 2017 at 2:09 pm

      Hi Jessica, I believe I introduced you to my lender friend in Oregon already. I just wanted to make a note here so that others know that I have these resources in most States.

      • Jenn on June 10, 2017 at 5:28 am

        do you have access to one in Austin, Texas area? We were pre approved and when through the process, then told no. (due to short sale) We moved from Ohio to Texas 3 years ago. We are in the process of having a house build since we were pre approved. Now we are looking for someone who would take our loan here in Texas. Thank you.

        • Scott Schang on June 10, 2017 at 11:03 am

          Hi Jen,

          Yes, I have a very resourceful and experienced lender friend that can help in Texas. She’s not located in TX, but she is licensed there and she’s very, very good with challenging scenarios.

          I’ll send an introduction in a separate email. At least speak with her and see what the says. Being a construction loan can make it more difficult, but if there is a solution, she will know how to approach it.

          Hope this helps?