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.

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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.

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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.

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.

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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.

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.

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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.

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.

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Portfolio loans are also great options for investors that need "out of the box" financing options.

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.

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.

About Scott Schang

A 20 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

  • Kate says:

    Seller requiring Portfolio loan in the realistate listing. Haven’ t contacted agent yet, concerned as to why a seller would insist on this type of loan.

    • Scott Schang says:

      Hey Kate, yeah, this is a little strange. Not sure why the seller would dictate what kind of financing unless they knew that something with the home would prevent it from qualifying from traditional financing. It’s also possible that the home needs a lot of repairs? but that wouldn’t necessarily be a portfolio loan, that would be a rehab loan, which are widely available using traditional Conventional or FHA financing.

      Definitely call the agent and find out what their logic was. If you need an introduction to a loan officer with portfolio loan experience, shoot me an email to and I’ll introduce you.

      Hope this helps?

  • Gelt Financial says:

    Well written and to the point. I appreciate the detail in this article!

  • Heathe G says:

    We are currently pre-approved to buy a 2nd home which was a condo at lake of the ozarks. After going through everything the lender can not do the loan becauae they said the HOA is underinsured and has no reserves whatsoever. The realtor has put us in touch with a local lender who says they can do the portfolio loan. But do we really want to buy this condo with the HOA money being an issue. Not to mention we put down escrow money, but if we tell them no is it our fault and we lose our money?

    • Scott Schang says:

      If the status of the HOA is such that you are unable to qualify for financing, then you should be able to pull out of the offer and get your earnest money back.

      Also, a great question about whether you “should” buy this condo? If the HOA has no reserves and is underinsured, that is a sign that the HOA is unable to keep the grounds maintained, and if something goes wrong, there isn’t enough insurance to cover it.

      Any major repair in that complex could make the HOA dues skyrocket to cover the gap.

      I don’t know if any of these things are “deal killers”, but you should factor it into your decision as to whether or not you want to invest in this particular unit.

      Hope this helps?

  • Meredith says:

    Looking at a second property in TX. It’s a “tiny home” so no comps. Was told to pursue a portfolio loan. New to all of this. Property is about $75k. My credit is good. Thoughts?

    • Scott Schang says:

      Hi Meredith, a portfolio loan may be one option, and I’m not sure that you would have no comps, I think that it would just require larger than normal adjustments due to the size and amenities of the property.

      I have a good friend in TX that owns a mortgage brokerage, I’m happy to make an introduction? If there’s a way, his team should be able to present you with options.

      If you would like an introduction, shoot me an email to and I’ll make that connection!

      Hope this helps?

  • Jen says:

    We short sold a property in March of 2016. We have great credit with an income of $110k. What would a typical portfolio interest rate look like for us?

    • Scott Schang says:

      Hi Jen, portfolio loan interest rates can vary greatly because by nature, the lender makes the rules. High credit scores and a large down payment will give you the lowest interest rates. With credit scores above 740 and a 30% down payment, you should be able to get rates under 5%, 2 years after your hardship.

      Lower scores and less down payment could result in rates in the high 6% to even 8% range. When you do the math, buying now vs waiting for 1 year for FHA, or 2 years for Conventional still makes a ton of sense. You’re only paying the premium rate for a short period of time.

      If you would like an introduction to a loan officer with experience with these programs, shoot me an email to, and let me know what State you’re buying in.

      Hope this helps?

  • Dennis Arranaga says:

    We have a short sale on our record, it will be 3 yrs in 08/18. The loan will be in my wife’s name, she has a 740 FICO and her earnings are approximately $ 150K per yr with overtime. 7 yrs on her job, 30 yrs in the profession. Credit card and car payments are around $ 1,000 per month. What kind of rate can I expect to pay , with a portfolio loan?

    • Scott Schang says:

      Hi Dennis,

      Before settling on a portfolio loan, I would want to explore any other opportunities first. Is there any chance that the mortgage was included in a bankruptcy prior to the short sale? Also, what price range are you buying in? What State/County are you buying in?

      The interest rates on a portfolio loan can vary widely. For the most part, they know you’re not going to keep the loan for long. They tend to be 5 or 7 year hybrid ARM loans. This means the rate is fixed for the 5 to 7 year period, then turns adjustable after that. The assumption is that you will not keep the loan long enough to let it adjust.

      The biggest factors determining your interest rate on a portfolio loan are your credit score and your loan to value (or down payment). It’s not unreasonable to see portfolio rates range from the low 5% range to the low 7% range, depending on your down payment.

      All that said, FHA allows a 3 year waiting period after a short sale…that would be a better option than any portfolio loan. In either case, whether you can qualify for FHA or if you choose a portfolio option, you would be eligible for a Conventional loan 4 years after the short sale. So either option could be a “bridge” to get you to that point.

      Most importantly, is that you’re working with a professional that has experience with all of these guidelines and options.

      If you would like to shoot me an email to, let me know what State you’re in, and if you have any other questions or concerns, we can take the conversation offline.

      If we get to that point, I can introduce you to someone. Hope this helps?

  • Barry Bruce says:

    Two cancer fights a few years ago (mine and our oldest son’s) cost us 14 months of far less than full-time. I’m still here and cancer-free, son passed away a couple months before his daughter was born. We did what we had to do to take care of the people in our lives — we’re not heros, we just did what almost everyone else on earth would have done to put people we love ahead money stuff. Consequences destroyed our credit history — scores ended up in the low 400’s and we came within an eyelash of losing a home to foreclosure. We’ve worked hard to begin repairing everything the past year and a half. Wife’s middle score is 585 at the moment (no judgments or liens against her; we filed married-separate returns along the way and the tax issues/liens are solely mine). My current middle score is 577 (but I have 2 federal tax liens for a total of $60,000). My wife made $50,000 (gross) during 2017 as a 1099 postpartum Doula (she provides overnight, in-home care of infants for people who have enough money to pay someone to do that so they — the parents — can sleep thru the night). She started doing that work in mid-December 2016, and she filed tax returns (only $300 or so of net income because she only worked a few nights in those 2 weeks, and we maxed all the deductions we could legitimately, but she did file returns for 2016). I make $96,200/year as the Controller for a large, local construction subcontractor — but, beginning is March or April of 2017 I began getting paid as an independent subcontractor (1099) also. Before I got sick I was rehabbing houses. Haven’t tried to complete, or completed, any such work since then, until now — have a house under contract and believe we can: (1) make $15-20,000 per rehab; and (2) complete 3-4 rehabs per year (using licensed contractors to complete the work of course — I work full-time). Found a home we want to buy. Purchase price is $675,000. Seller is a successful business-owner who lives in Florida (the home we want to buy is in Carroll County, MD). He owns the home outright and is willing to provide SOME seller financing but wants to keep that amount to a maximum of $150-175,000. Maximum FHA limit in Carroll County is $517,500 for 2018. My wife has $130,000 in liquid, available assets (the net settlement proceeds she received 3-4 weeks ago from a lawsuit related to a traffic accident) Given my tax liens: (1) we’re expecting to have the home we want to buy deeded in my wife’s name alone; and (2) we’ve been very careful to ensure that the settlement proceeds were deposited to a new account in which I have no ownership interest at all (and no money has been used from that account to pay any cost or expense on my behalf). Offered seller $75,000 down, and would like to keep it at that level so we can: (1) hang onto some capital to use for the rehabs; (2) get my wife a more vehicle that’s more appropriate for the overnight hours she works, and the fact that she sometimes works for clients in Baltimore City; (3) put to work to negotiate and settle a joint collection account (less than $5000) related to a car that got repossessed a couple years ago — a casualty of the way we’ve had to rob Peter to pay Paul post-cancer, and the fact that my wife couldn’t work and go to school (nursing) at the same time so we lived on my income alone — and my tax liens so we can use my own income to help us qualify for conventional financing in the next 2 years (unless keeping a portfolio loan makes more sense); and (4) have some cash reserves for the first time since my son and I got sick. We’re supposing that no one will allow my name on a mortgage contract until my tax lien are paid off, or until an payment plan is obtained that stays future collection efforts. Whether that assumption is so or not, “officially” or “unofficially”, my income will be available to my wife to help her make “her” mortgage payments and to take care of the rest of the family’s living expenses (if she pays off the $2500+/- balance she owes on her credit cards, the only expense she’d have against her DTI ratio would be a $250/mo student loan payment). The plan is to use a significant portion of the profits of the rehabs to pay down meaningful chunks of mortgage principal so we can get it under the FHA limit within 2 years (hopefully we’d have better options then than an FHA loan, but, we’d live with an FHA loan if we had to). In the end we’re hoping you can help us get my wife approved for a mortgage of that, combined with the $75,000 we’d like to put down as equity, would get us about $500,000 to give the seller at Closing (he’d hold the balance of the sale price for a couple years) and, hopefully, limit what we have to pay in the way of out-of-pocket closing costs to $15-20,000. With $50,000 of earnings from the 1 full year she’s been working, I know it would be difficult, at best, to get her qualified for that much. Forgive me, I’m just telling you what our hopes are. If you can’t, in fact, get her a mortgage of that amount, then we’d ask you to see how much you could get her and see if the seller would be willing to hold a larger second mortgage. If, by some stroke of unexpected extraordinary good fortune (combined with things I don’t know about what you might be able to get approved with a portfolio mortgage) you could get her/us more of a mortgage than we’re hoping for, then we’d be more grateful than we could ever hope to express, of course. I’m sure there’s something I’ve forgotten to tell you, and things you’ll need to know that I haven’t thought to tell you, but I hope I have given you enough here to have a feel for whether you can help us, or not. Thanks so much for your time.

    • Scott Schang says:

      Barry, thank you very much for taking the time to provide so much detail about your situation.

      I’m so sorry to hear that your Son lost his fight. You say you’re not a hero, but your strength and perseverance appear to be truly super-human!

      Ok, let’s start digging into all of this. First and foremost, I’ve introduced you to a lender friend of mine that has experience with FHA manual underwriting, and portfolio financing. You should have received an introduction already by email.

      The single most important thing you can do at this point is find a professional loan officer that has the experience and patience to help you navigate all of the steps you’re going to need to take to get back into pre-hardship financial condition.

      Steven (the loan officer I’ve introduced you to) is going to go through all of these things very slowly and purposely in order to explore all options, and choose the best path forward.

      There are many hurdles that I can see that need to be carefully understood.

      The big issue that jumps out at me here is obviously the credit scores. There is a lot we can do to help get your credit back in good shape, and my personal experience is that these types of scores are causes as much by not building good credit, as it is the reporting of negative credit. Time fixes all things with credit when being proactive and purposeful.

      The self employment is going to be a real challenge. All lenders are going to want to see a minimum 2 year history of self employment, but more important than that, it means that your income is going to be derived directly from your tax returns and averaged over the previous 2 years. Now, there will be some tax deductions that can be added back into your “qualifying income”, so that might help.

      When we look at portfolio lending (lenders that write and service their own loans), you can find flexibility with credit scores, but this risk is typically offset by providing a large down payment and having reserves.

      As far as the tax liens go, Fannie Mae announced in July 2017 that it would stop importing tax liens on credit reports used for making credit decisions. I personally have not tested this scenario where we’ve overcome a tax lien, but it sounds like it might be able to be overcome. Here’s the Fannie Mae announcement on that –

      The next thing I wanted to address is the flipping opportunities. There are portfolio lenders that will lend money for investment properties that will overlook most of the challenges you’ve presented here as long as you have a large down payment. These are temporary loans for the purposes of fixing and flipping homes.

      I apologize that this is not as detailed of an answer as what you provided in laying out your situation. I guess the one thing I want to leave you with is that anything is possible. Time overcomes most challenges, and so “timing” becomes the most important piece of putting all of the pieces of this puzzle together.

      Having a professional, experienced loan officer on your team is the first step. Patience is the next step. Anything is possible.

      There is no question that there’s a solution here. I’m just not sure of how the timing for that solution may play out.

      Congratulations for doing such a great job recovering from what life threw at you. I am confident that this will end well.

      Hope this helps?

  • Sally Litvin says:

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

    • Scott Schang says:

      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

      Hope this helps?

  • Sally Litvin says:

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

  • Leslie Flor says:

    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 says:

      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