A portfolio loan is a loan that a lender, such as a bank or credit union, originates and keeps in its own portfolio rather than selling it to other financial entities like Fannie Mae or Freddie Mac. This means the lender finances the loan with its own funds and manages it directly throughout its term.
Conventional loans are typically sold on the secondary market to free up capital for additional lending. In contrast, portfolio loans stay on the lender’s books, allowing greater flexibility in underwriting criteria. This flexibility can benefit borrowers who do not meet conventional guidelines, such as self-employed individuals with variable income, real estate investors purchasing non-conforming properties, or those with unique financial profiles.
Portfolio loans are often used for:
- Financing unique or mixed-use properties that don’t qualify for standard mortgages (non-conforming loans)
- Borrowers with non-traditional income verification
- High-net-worth individuals seeking asset-backed loans, including securities-backed loans
Advantages of portfolio loans include customized loan terms, direct communication with the lender, potentially faster decisions, and access to financing for unusual circumstances. However, they may carry higher interest rates or fees due to the increased risk the lender assumes, and fewer institutions offer these loans compared to conventional ones.
Before applying for a portfolio loan, it’s important to shop around as criteria vary widely among lenders. Understand the loan terms carefully, including interest rates, fees, and any prepayment penalties. Maintaining a strong relationship with your lender can also be beneficial since you will manage the loan directly with them.
For borrowers needing flexible lending solutions for unique properties or financial situations, a portfolio loan can be a practical option.
Learn more about related loan types such as non-conforming loans and jumbo loans to better understand your financing options.
Sources:
- Investopedia, “Portfolio Loan,” https://www.investopedia.com/terms/p/portfolioloan.asp
- Consumer Financial Protection Bureau, “What is a portfolio loan?”, https://www.consumerfinance.gov/ask-cfpb/what-is-a-portfolio-loan-en-2150/
- NerdWallet, “What Is a Portfolio Mortgage?”, https://www.nerdwallet.com/article/mortgages/what-is-a-portfolio-mortgage