Soon after closing many loans are packaged together with others with similar characteristics and sold on the secondary market. The lender that made the loan may still handle the day to day management or “servicing” of the loan, but they transfer the ownership of the loan to investors who hope to make a profit as the mortgage is repaid with interest, over time. This frees up funds for the lender to make new loans.
In order to be saleable mortgage loans have to follow specific guidelines which make them attractive to investors on the secondary market. In some cases lenders choose to offer loans with different characteristics knowing they won’t be able to sell them, and instead retain ownership of these “portfolio loans.”
Why do investors offer portfolio loans?
It might be because they believe they can make a profit on a specific type of niche financing. They might also want to attract a certain type of valuable client who they hope will continue to do business with them for many years to come.
We spoke with Brent Eckhardt of SunTrust Mortgage in Wilmington, NC who specializes in doctor loans for new physicians. “Doctors come out of school with a lot of debt and often can’t come up with a large down payment. Because of their job stability and high earning potential we’re able to offer a portfolio loan program that allows 100% financing or very low money down options even for jumbo loan amounts,” said Eckhardt.
Some of the highlights of this program include:
- No private mortgage insurance required
- 100% financing for loan amounts up to $650K, 95% up to $1 million, and 89.99% up to $1.5 million
- For medical residents, interns, fellows, DOs, and licensed medical physicians within 10 years of completing residency (maximum loan amount of $417K for residents, interns, & fellows.)
What types of portfolio loans are available?
In addition to the doctor loan program from SunTrust mentioned above, here are a few other loans available in the marketplace as of the writing of this post that are likely portfolio products:
1st Portfolio Lending Jumbo and Super Jumbo Loans
- Borrow up to $10 Million
- Interest Only Option
- Amortized over 40 year loan term
- Use pledged asset to satisfy down payment and assets for income requirements
- Financing available for primary residence, vacation homes, and investment properties
Economic Opportunity Mortgage from Union Bank
- Low Fees
- As little as 5% down payment (80% financing for cash out refinances)
- Approval possible even with limited credit history
- No private mortgage insurance
- Available in Colorado, Oregon, & Washington State
Why would a borrower want a portfolio loan?
Portfolio loans make up a small percentage of the mortgages originated across the country, but they can open up the possibility of a home purchase or refinance that might not otherwise happen in certain scenarios. If there are characteristics about your situation that mean you might not qualify, or might not be able to obtain good pricing, from typical loan programs, you might want to investigate portfolio loans to see if one might be a good fit for you.