The What and Why of Portfolio Loans
Have you heard of Portfolio Loans? If not, don’t worry — you are not alone! The term sounds a little like something off of Wall Street, rather than your neighborhood streets.
It might surprise you to learn Portfolio Loans are actually an accessible mortgage loan product that we offer here at Great Midwest Bank to qualified borrowers. These loans can be a helpful route for people in a variety of unique situations. Approval for a Portfolio Loan is not guaranteed, but we will outline all your options after an in-depth financial evaluation during the application process.
If you’re not sure what a Portfolio Loan is or why a person might use one, you’ve come to the right place! Be sure to also check out part two of this article (coming soon) where we will explore the how, who, when and where of Portfolio Loans.
What is a Portfolio Loan?
A Portfolio Loan is a home loan that stays in a lender’s investment portfolio for the entire duration of the loan.
A Portfolio Loan is different from most mortgage loans for a few reasons. A conventional conforming mortgage loan needs to align with strict government-sponsored entity guidelines, such as specific debt-to-income ratios and minimum credit scores. Conforming loans also include minimum down payment requirements and limits on how large the loan amount can be.
Since a Portfolio Loan becomes part of the bank’s own investment portfolio, Great Midwest Bank does not sell the loan or the servicing (monthly payment collection) to another bank or organization. We take care of it all ourselves, right here in Wisconsin.
Using Common Sense to Determine Who Qualifies for Lending
That also means that we get to use our best common sense judgment on Portfolio Loan decisions. We work to get a complete picture of your income and assets, rather than just checking boxes when reviewing a loan application. Based on our own in-depth evaluation of your financial situation, we will decide whether you best qualify for a conventional loan — or if maybe a Portfolio Loan is a better fit for your situation.
Our portfolio loans are funded locally right here in Wisconsin, with funds deposited by Great Midwest Bank account holders. You can feel confident that your loan is in competent and caring hands at Great Midwest Bank, and know that you’re helping to do some good for the economy of the local community.
[What is common sense lending?]
Why are Portfolio Loans used?
Think of Portfolio Loans as a unique loan option for those going through unique circumstances.
This type of loan can be a helpful choice for borrowers who may not fit into the traditional lending model, often due to temporary life situations. If Great Midwest Bank determines you are a good candidate, a Portfolio Loan may be offered as an option to you — often times when you may not currently qualify for a conventional mortgage.
Because the loan is funded by Great Midwest Bank, there are typically fewer underwriting restrictions. Portfolio Loans are part of our common sense approach to mortgage lending–different from the “fit-in-the-box” approach consumers experience with a conventional mortgage. Our common sense lending is what sets us apart from many other banks of all sizes!
[Why Community Banking Matters]
Only certain borrowers will qualify for a Portfolio Loan. Some reasons you may be eligible are if you can make a down payment, demonstrate the ability to pay off a loan, and meet certain credit and debt-to-income requirements. These standards are all determined by Great Midwest Bank using our experienced judgment. We will work to assess your financial situation and determine all your options from there.
Two common reasons people may be considered for Portfolio Loans relate to financial circumstances or the type of real estate they are seeking to buy. Let’s explore some of these scenarios.
Many common financial situations may make someone a suitable candidate for seeking out a Portfolio Loan.
There are a number of reasons why a particular borrower might not fit into the typical conventional “box” that banks use to approve (or disapprove) a loan. Life events like divorce, injury resulting in medical bills, or bankruptcy can negatively impact your credit score. Those who are self-employed often do not fit into the conventional mortgage parameters either.
Portfolio lenders like Great Midwest Bank have the tools to analyze each application and the circumstances of every individual applicant, rather than make snap judgments.
When exploring loan options, our specially trained loan officers look at your complete financial situation to make a common sense lending decision.
Self-employed and/or Have Irregular Income
The first group to take special note of is self-employed workers. They don’t always fit into the conventional mortgage category because their income may be less consistent than that of a salaried worker. Depending on a variety of factors, certain months may yield higher earnings and other months may be leaner.
Some people earn most of their income during specific times of the year, too. For example, if you’re working as a landscaper in Wisconsin you probably aren’t doing that work during the winter months. Maybe to fill in that gap in winter you earn some money by offering snow removal services — but that also depends on Mother Nature and will vary month-to-month.
At Great Midwest Bank, we understand that people’s earnings come in lots of shapes and sizes. That is why we offer loans to meet customers’ different needs. We will be sure to examine your full financial snapshot — not just the surface-level details.
Have Non-Traditional Credit (without Traditional Credit)
Many people also have non-traditional credit — credit that does not factor into an Equifax, Experian, or TransUnion credit score.
Great Midwest Bank understands that this doesn’t always reflect a borrower’s ability to keep up with mortgage payments. Someone without traditional credit built up may have an excellent history of paying life expenses like insurance fees, utilities and monthly rent. Unfortunately, those are all considered non-traditional credit and do not get captured in their credit score.
Someone may also have a high income or net worth but might still be working on building up their credit score.
[How to Build Credit When You’re Just Starting Out (or Starting Again)]
Face Temporary Financial Hardship, Judgements, Liens or Tax Issues
Other financial situations, like temporary financial hardships, judgments, liens and tax issues can complicate one’s ability to secure a traditional mortgage. Some other situations include the need for a second mortgage, or purchasing a home after something like a foreclosure. Things can also happen in life that may cause your credit score to take a hit, like dealing with unexpected medical bills that come up or a settlement.
Another common Portfolio Loan situation is that an individual is in the process of moving for their job. They have accepted employment in the area, but have not actually started their new role yet because they are working on moving and settling in first.
Perhaps the person is trying to find a new home for their family, but has had trouble qualifying for a conventional loan. Since the borrower has not yet started their new job, they do not have recent pay stubs to provide for the loan application. In many conventional loan situations, this would trigger a red flag in the automated review system and the application would be rejected.
Since Great Midwest Bank’s loan officers review every loan application by hand, we will see these types of situations and make an informed judgment on your loan options.
If you’re going through a job change or any of the above challenges, explore your options with Great Midwest Bank. We’ll assess your unique situation to see if a Portfolio Loan might be a good fit for you.
You might be a good candidate for a Portfolio Loan based on the type of real estate you are buying. Certain properties and property circumstances do not tick all the boxes needed to qualify for conforming loans.
Unique and higher priced homes that do not have any comparable properties in the area may be considered for a Portfolio Loan. Real estate comparables, often referred to as “comps,” are properties located in the same general area as the property you want to purchase, and that have similar square footage and specifications.
When working to secure a conventional mortgage, one of the required steps is to get an appraisal of the home’s value. Comps are critical in the appraisal process. Without them, a property is much harder to appraise (there’s nothing to compare it to!) and therefore it’s harder to get them qualified under conventional loan guidelines.
Is the property you want to buy a rare gem without comparable properties in the area? A Portfolio Loan may be a feasible route.
Great Midwest Bank takes a common sense approach to each property and borrower situation. We cannot guarantee that every property will qualify for a Portfolio Loan mortgage, but we will explore every angle for you.
Condos may be a terrific fit for Portfolio Loan consideration. Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation) and FHA (Federal Housing Administration) loans specify detailed parameters that must be met by homeowners’ associations. Oftentimes, condominiums do not align with all the necessary standards to conform with these types of loans. If these conventional loan standards are not met, the loan can’t move forward.
Conventional loans usually specify that to qualify for a home mortgage on a condo unit, half of the condo association units must be owner-occupied. Great Midwest Bank has found that even if condominiums and their homeowners’ associations do not fit all the conventional loan boxes, the borrower and property may be well-suited for a Portfolio Loan. We will be sure to take a look at your loan options if this is the case for you.
Vacant lot loans are another specialty at Great Midwest Bank. For those planning to build in the future, we often use a Portfolio Loan to temporarily finance a lot that is suitable for future construction.
Local banks like Great Midwest Bank can be a wonderful source of financing for this type of transaction because we offer flexible options and keep the money in the local economy. We are also passionate about helping to build up the local community because we’re in your community. Great Midwest Bank is the lead lender in a Milwaukee neighborhood development of empty lots at Walnut Circle and Josey Heights.
We’ll work with you to see if a Portfolio Loan might be an option if you’re looking to purchase a vacant lot.
Lastly, another common use of our Portfolio Loan is for investment properties. Great Midwest Bank has long been a provider of financing to experienced landlords who don’t qualify for secondary market financing, often because they have exceeded the maximum allowed number of financed units.
At Great Midwest Bank, we value our relationships with our clients and borrowers, and take the time to custom-fit a solution one customer at a time. We’ll explore your needs and determine if a Portfolio Loan is a fit for your investment property.
Why does Great Midwest Bank offer Portfolio Loans?
You caught us — we’re sneaking another “why” in here!
Hopefully it is becoming clear why Portfolio Loans can be a valuable choice for borrowers and their unique life situations. Not all banks offer Portfolio Loans, though. Sometimes Portfolio Loans are even kept as more of a hush-hush option for select customers, since Portfolio Loans can present a little more risk for the lender than other types of loans.
So, why does Great Midwest Bank offer Portfolio Loans and declare it proudly?
It’s Great Midwest Bank’s best kept non-secret. We’re passionate about serving the needs of as many local customers as possible and are always open and honest about your options. We believe everyone’s entire situation should be considered to ensure that we are exploring every potential door to homeownership for you. We won’t leave a brick unturned.
Interested in exploring a Portfolio Loan?
If you have any questions about Portfolio Loans and finding the perfect financing fit for your situation, visit one of our nearby locations or give one of our friendly local loan officers a call for more information. Our experienced loan officers at Great Midwest Bank know what it takes to get you the solutions you need. We are Wisconsin homeowners too and are here to make the loan process as stress-free as possible. Great Midwest Bank’s mission is for you to feel a state of BankquilityⓇ after every banking encounter.
This post was originally published in August 2017. It was most recently updated in May 2022.