Financing

4 Replies

What is portfolio financing and How do you go about getting portfolio financing?

A portfolio loan is a loan that is serviced by the lender that issued the money. Here are the basics of the portfolio loan and how it works.

Portfolio Loan

In many cases, loans that are issued by a lender are packaged together with other loans and sold in the secondary market. With a portfolio loan, the lender that initially wrote the loan is going to hang onto it and keep it as part of their investment portfolio.

Benefits

If a lender keeps your loan as part of their portfolio, it can benefit you overall. Instead of having to work with a lender that is going to service your loan from another location, you will be able to keep your relationship with the lender that you originally worked with. By doing this, you will be able to contact them whenever you have a problem. Your customer service experience should improve.

Good Credit

Typically, those that have a good credit score and are considered to be a good credit risk are those that are considered to be eligible part of a portfolio. Lenders like to keep those that have a good credit history on hand because it lowers the amount of risk in the portfolio

Thanks Nicholas and Jerry!!! But would a portfolio loan work better if I am trying to build my own portfolio of rental properties?

You don't need a portfolio loan to build a portfolio of rental properties. I think the term "portfolio lender" is more clear. You can own 10 properties with mortgages from 10 different lenders, one (or more) of which is a portfolio lender.

From my understanding, only a conforming mortgage can be packaged and sold off. A confirming loan is one that fits Fannie's and Freddie's standards. I believe these are the only mortgages the big national banks will do. A smaller community bank often holds the mortgages they write and do not package and sell them. Because they don't intend to sell these mortgages, they don't have to meet the standards. For instance, a portfolio lender may write a mortgage for someone with a 700 credit score where a larger bank may not.

In short, portfolio lenders can be more flexible and may "bend the rules" to make a loan they consider a good investment. I personally feel building a relationship with a local portfolio lender is a good move, but not necessary to obtaining a portfolio of rental properties. 

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