What is a Portfolio Loan?
A portfolio loan are designed to approve almost anyone, even those who would not normally be able to be approved for any of the basic kinds of loans. A portfolio loan is a public relations gesture as well as a financial decision; the main reason more small banks, and home grown credit unions will accept Portfolio Loans is fairly simple. They believe by giving some one a chance, especially when the borrower has been turned away various times before, they will in turn gain a customer for life. These loans are also given on more of a personal level because of the tendencies to be restricted to local banks. Because of this personal interaction, the bankers might know more about the individual as a person, everything from his non-recorded credit history to their spending habits. This enables these small financial institutions to assess risk on a deeper level then a bigger corporation that may only be concerned with their payments.
A portfolio loan at its basic level is a loan that would be analyzed as a high risk situation and because of this risk isn’t placed on the secondary market, but rather kept in the lender’s portfolio, hence the name.
Portfolio loans can be an excellent way to get back on your feet after a particularly hard credit issue. For instance if a borrower was to suffer from a bad credit issue such as; bankruptcy, foreclosure, short-sale, excessive unpaid or late bills a borrower must wait three years or longer to even consider financing options from a major lending company.
Sometimes a Portfolio Loan isn’t just about the credit score of the borrower, it can also be about the purpose of the loan. The purpose can be outside the purview of any thing conventional and thus need a more personal touch. This can include:
- condominiums that fail to meet Fannie Mae, Freddie Mac, or the Federal Housing Administration guidelines
- commercial properties to be used as residential, whether partly or fully
- any house built using materials or missing guidelines from the Federal Housing Administration, for instance log cabins
Another borrower who would profit from a portfolio loan is any foreign nationals or people who have been outside the United States for a long enough period not to have credit. Or a borrower who makes their income in a unique way, or a way that a bank without knowing the whole story would see as questionable or non-sustainable.
It is critically important to remember that a portfolio is still a fully documented loan, unlike a stated income loan, and thus still requires everything a loan would normally require.