If you want to buy a home but can't qualify for a conventional or government-backed home loan, home ownership may seem out of reach. Maybe you've recently gone through a big life change, like moving from a 9-to-5 job to self-employment, so you're struggling to find a lender. Fortunately, there is alternative financing to help people in your position become homeowners – including portfolio loans.
Additional information: Types of mortgage loans
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In many cases, the mortgage lender making your loan will sell it to a government-sponsored enterprise (GSE), such as Fannie Mae or Freddie Mac, to obtain new financing. But portfolio loans work differently. When you take out a portfolio loan, the lender keeps it on their books instead of selling it on the secondary market. Portfolio mortgages are not backed by the government (like FHA, VA and USDA loans) and are generally underwritten, issued and managed by a private lender.
A portfolio mortgage works much like a traditional mortgage in that you must apply for the loan, meet eligibility criteria, go through closing and make monthly payments as agreed. However, because these loans are retained by portfolio lenders, they are not subject to GSE requirements. As a result, lenders “…can create their own guidelines and often make exceptions and approve loans that would be denied with traditional underwriting guidelines,” said Jennifer Beeston, the company's senior vice president Rate (formerly Guaranteed Rate)via e-mail.
Beeston recommended researching and meeting with several loan officers to see their options for your unique situation. This will ensure you are working with an expert and get the best deal possible.
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Portfolio loans are not standardized, so there are no consistent lending requirements from lender to lender. However, Andrea “Bella” Bellony, CEO of home buying company Bellonys, said via email that the following qualifying criteria are common:
Your lender may also charge more to compensate for the additional risk of issuing a loan that may not meet traditional underwriting conditions. Your interest rate and closing costs may be higher than with a traditional mortgage. In case of early repayment of the debt, you may also be charged a penalty for early repayment.
Additional information: How does the mortgage underwriting process work?
“Once you've done your research, I would suggest getting pre-approved by two top loan officers and getting fully underwritten,” Beeston said. “Ask them to go over the rates and fees and really spend time walking you through what to expect and the pros and cons of the loan product they're proposing.” Then you can choose the best option.
Don't be afraid to advocate for yourself to get a good deal. “Try to negotiate a prepayment fee that allows you to refinance to a [traditional] loan after row without having to cough up an exorbitant prepayment penalty,” suggested Randall Yates, co-founder of the VA Loan Network, via email.
Read more: How the penalty for early repayment of the mortgage works
4. Complete the loan and enter the payment
If the bank approves your application, you will receive a confirmation. As with any other mortgage, on closing day you sign the papers, pay the down payment and complete the transaction. You will soon receive your first mortgage statement.
Dig deeper: Home Closing — What to Expect and How to Prepare
Like any financial product, portfolio loans have their advantages and disadvantages. Here are some of the main ones:
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Potential access to financing when you don't qualify for a conventional mortgage
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You can start building equity and hopefully improve your financial situation
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A stable relationship with the same mortgage lender throughout the duration of the loan
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Potentially higher interest rates and fees than other types of mortgages
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A higher deposit is usually required
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You may need significant cash reserves or assets to qualify
Additional information: How to build equity in your home
“Portfolio loans are like a tailored financial solution for those who don't tick the usual boxes,” Yates said. “I see these loans as essential for some people who are often overlooked by traditional lenders – such as the newly self-employed, people with bad credit or those who need more than the usual credit limits.”
Bellony said a portfolio loan may be right for you if you're trying to get back on your feet after a bankruptcy or divorce. This type of mortgage could also work if you have significant assets rather than verifiable W-2 income.
However, if you can qualify for a traditional mortgage, you'll probably want to avoid portfolio loans. Conventional and government home loans tend to be cheaper because they are less risky for the lender.
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According to data from the Urban Institute, portfolio loans accounted for more than 31% of mortgage loans in Q3 2024. Beeston said the current — and future — popularity is due to several factors, including rising home prices that lead to giant loans (which the GSEs generally don't buy) and an increase in the number of self-employed persons.
Yes, you can refinance your existing mortgage into a portfolio loan. It may make sense if you have the ability to secure a lower interest rate but don't have current tax documentation that meets traditional underwriting guidelines. In that case, your lender could provide the loan based on bank statements or other documents that prove your ability to repay the debt.
Not all banks offer portfolio loans. Portfolio mortgage lenders are generally smaller local credit unions or banks. You can also secure a loan through an online bank such as Axos Bank.
Edited this article Laura Grace Tarpley.
