Not all home purchases fall into a definitive category. While it would be simple for everyone to fit neatly into either the FHA, Conventional, VA, USDA, or Jumbo mortgage columns, each situation is unique. To handle those who may be financially stable enough for a mortgage, but not really line up with any one situation, portfolio loans may be the answer.
In a nutshell, portfolio lending occurs when the borrower is ineligible for traditional financing. Small banks and credit unions back these borrowers by keeping the mortgages in their portfolio in order to help the local economy grow. They are seen as the bank that is willing to take a chance on a local customer when the big conglomerates have turned them away.
Instead of looking at just the borrower’s credit history and income level, these establishments are willing to look at the big picture. They are willing to talk to the customer and find out what happened in the past to make potential amendments to their history if need be. For a lender considering a portfolio mortgage, the story is just as important. There are many reasons why these loans are the necessary way to go.
Recent Credit Problems
There are times when a borrower has gone through a rough patch and is now on the other side. However, that patch has resulted in damaged credit. It could be because of a divorce or injury that made them unable to work for a few months. In other situations, a recent bankruptcy, foreclosure, or short sale could be responsible. For portfolio loans, the waiting period to obtain a mortgage with these types of credit problems is less than what a traditional lender would require as long as the borrower can prove that he or she is back on their feet financially.
Foreign nationals can run into problems trying to obtain a mortgage in the US. Often this boils down to two major issues: their income and credit are both established in a foreign country. Traditional mortgage options are not available. Portfolio mortgages is a viable option, provided the national can provide income history for at least the two previous years, a statement of assets, letter explaining their intent to stay within the US, proof that they are currently employed in the US, and copy of their VISA and all related documentation.
Some properties are so unique that they defy the lender regulations for applicable properties. This situation is actually very common, especially when dealing with condominiums. Condominiums with a homeowner’s association are scrutinized to determine if the property is financially stable. If the association has a lack of reserves, then the mortgage may be denied. Also, if there is inadequate insurance coverage, an excessive number of units occupied by renters, or it is still under construction, then the lender may say no.
While condos are commonly denied by traditional lenders, they are far from the only type of unique property to be turned down. Commercially zoned properties that the borrower intends to use as a residence falls into this category. Log cabins, berm homes, and any home where an appraiser is having difficulty assessing the value may not qualify for a traditional mortgage.
Portfolio loans give hope to those who want to purchase a property but do not qualify for a traditional mortgage. Instead of looking at one aspect, these lenders want to understand the big picture.