Portfolio Mortgages Good or Bad?

Question

Hello BP! Was looking at what different banks have to offer. Ran across something called a portfolio mortgage. This is what I am seeing:

• Initial interest rates are lower than traditional fixed rate home loans
• You'll enjoy a guaranteed interest rate for up to 10 years
• Gives you the most home for a low initial payment

This all sounds good. Is there any cons? I do plan on using the BRRRR strategy.

Looking forward to your responses BP. Thank you.

Best,

Jorge

Robert Sepulveda · Answer

@Jorge Ruiz you'd definitely want to use conventional investment property loans (fannie/freddie) when you can. You'll get the best market rates available that are fixed for the duration of the loan. If you are interested in shorter term fixed rates that could save you money, you still want to stick with conventional loans and just pick a 5 or 7 year ARM.

But Portfolio loans are great to keep you out of hard money's expensive rates if you can't qualify for conventional loans. If you're self employed and have difficulty documenting income, it can help you qualify where you otherwise wouldn't. If you have too many properties ( a good problem) you can qualify with a portfolio loan. Or if you have credit deficiencies or alternative income you'd like to consider, then a Portfolio loan will give you reasonable rates with flexible underwriting. Some programs are geared toward solving a specific problem an investor may have.

If conventional loans on investment property are 4.75% for a 30 year fixed, and 4% for a 7 year ARM, then a portfolio loan would typically start at about 1% higher and go up from there (just an example). But just remember to match the term to your investment strategy.

Shaun Weekes · Answer

I would only recommend using a portfolio loan if you can't qualify for a traditional loan.  If you need the money quickly then a private or hard money lender would fit the bill.

Really the best thing to do is to find a broker or loan officer that has experience and then have them do the leg work for you.  At that point they can point out all your options and you can make an informed decision based on their expect analysis.

I hope this all helps and have a great day.