A portfolio loan is a type of mortgage loan that a lender retains and does not sell on the secondary market. Since it is never sold to another investor, a lender has more control over the eligibility criteria it deems acceptable. This makes a portfolio loan a good option if you do not qualify for a traditional loan or are looking for more flexible qualification requirements.
While portfolio loans can be easier to get as a borrower, lenders consider them a higher risk because of the expanded eligibility criteria. As a result, portfolio loans tend to carry higher rates and fees.
Portfolio Loan Types, Rates, Terms & Requirements
The rates, terms, and qualifications for portfolio loans will vary depending on your business needs and the participating lender. Those items can also be determined by your intended use of the loan proceeds and your loan amount. For example, portfolio loans can be used to purchase a single or multiple properties simultaneously.
Here are some common types of portfolio loans along with a summary of typical rates, terms, and requirements you may come across.
Purchase Portfolio Loan
Typical Rates & Terms | |
Loan Amount | $766,550 |
Starting Interest Rate | 6.75% |
Repayment Term | Up to 30 years |
Typical Qualifications | |
Loan-to-Value (LTV) Ratio | 95% |
Credit Score | 550 to 620+ |
Debt-to-Income (DTI) Ratio | 55% |
Cash Reserve Requirements | 0 to 6 months |
A portfolio loan can be used to purchase a property that may not otherwise qualify due to necessary repairs. By comparison, traditional lenders typically require a property to be in good condition, and free of health or safety hazards. This is to mitigate risk on the lender’s part and ensure that in the event of a default, it will be easier to resell the property and recoup some of its losses. Properties in poor condition tend to be more difficult to market and sell, making it more challenging for the lender to break even.
If you’re looking to buy a property that doesn’t qualify for traditional financing, you might consider a portfolio loan to acquire it. Afterward, you can complete the necessary repairs. That said, rates and fees tend to be higher to account for the increased risk of loss to the lender. Depending on your overall credit and finances, you may also be required to place a larger down payment or provide proof of cash reserves.
Cash-out Refinance Portfolio Loan
Typical Rates & Terms | |
Loan Amount | $766,550 |
Starting Interest Rate | 6.75% |
Repayment Term | Up to 30 years |
Typical Qualifications | |
LTV Ratio | 80% |
Credit Score | 620+ |
DTI Ratio | 45% |
Cash Reserve Requirements | 6 to 12 months |
In a cash-out refinance, you convert your property’s equity into funds you can use for other purposes. Cash-out refinances work by giving you a new loan amount that is larger than what is needed to pay off the existing mortgage loan on the property. Once the payoff balance and loan fees have been accounted for, the remaining amount can then be deposited into your chosen bank account.
To do a cash-out refinance, you’ll need a sufficient amount of equity in the property. Lenders will often require an appraisal of your home to determine its current value. The amount of existing mortgage loans on the property and the lender’s maximum LTV ratio will then determine your maximum loan amount.
Jumbo Portfolio Loan
Typical Rates & Terms | |
Loan Amount | $5 million and up |
Starting Interest Rate | 6.5% |
Repayment Term | Up to 30 years |
Typical Qualifications | |
LTV Ratio | 80% |
Credit Score | 680+ |
DTI Ratio | 45% |
Cash Reserve Requirements | 12 to 24 months |
Jumbo portfolio loans are typically larger loan amounts that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These limits can vary each year and are dependent on things like your property location and property type. For 2024, most loan amounts that exceed $766,550 will be considered a jumbo loan. However, that amount can vary, depending on the specific property characteristics.
A portfolio loan does not have to be categorized exclusively as a jumbo loan. In other words, a jumbo loan can also be a purchase, cash-out refinance, or blanket mortgage, depending on what you intend to do with the loan proceeds.
Blanket Mortgage Portfolio Loan
Typical Rates & Terms | |
Loan Amount | $50 million+ |
Starting Interest Rate | 4% |
Repayment Term | Up to 30 years |
Typical Qualifications | |
LTV Ratio | 80% and under |
Credit Score | 620 to 650-plus |
DTI Ratio | 45% |
Cash Reserve Requirements | 6 to 12 months |
With a blanket mortgage, you can purchase multiple properties or parcels of land secured by a single loan. This can streamline the financing process and save time from having to finance each home separately.
Blanket mortgages can also simplify loan payments, as a borrower would only need to make one payment to cover multiple financed properties. They are often structured to allow the release of the mortgage lien against individual properties. When this occurs, they can vary depending on the terms of the loan agreement, but lien releases are typically triggered when the property is sold or the loan is paid.
This flexibility makes blanket mortgages a popular choice for investors looking to purchase a subdivision of homes, as it allows them to sell individual homes without needing to pay off the entire blanket mortgage loan amount.
Portfolio Loan Pros & Cons
| Pros | Cons |
|---|---|
| More flexible qualification requirements for things like credit, income, and assets in comparison with other CRE loans | Interest rates and closing costs tend to be higher than traditional mortgage loans |
| Larger loan amounts available than standard mortgages | Fewer consumer protections against predatory lending practices in contrast to other mortgage loans |
| Loan terms can be customized | Can be more difficult to find compared with traditional financing options |
| Properties needing repair are more likely to be eligible for financing | Prepayment penalties may apply to certain loans |
Who Should Consider a Portfolio Loan
If you are looking to make a real estate investment and are having trouble getting approved for traditional financing methods, a portfolio loan may be a possible solution. Generally, portfolio lenders have more flexibility when it comes to not only setting the initial qualification requirements but also making credit policy exceptions. Here are some scenarios in which a portfolio loan may be a good alternative:
- You have a low credit score or other credit issues: If your credit score is not high enough for other lenders, a portfolio lender may consider you for financing if you have other compensating factors such as strong revenue or a large down payment. This can also apply if your credit score is sufficient but you’ve been disqualified from other lenders due to negative items on your credit report, such as bankruptcies or outstanding collection accounts.
- You have income from irregular sources: Traditional lenders typically like to see a stable source of income that can be easily documented. If your income is not easily tracked or is otherwise unstable, a portfolio lender may have more flexibility to consider alternative methods of income verification.
- You don’t have much money for a down payment: Depending on the type of loan you’re trying to get, traditional lenders may require a large down payment as a condition of getting a loan. Portfolio lenders, on the other hand, can allow for lower down payment amounts, especially if you have strong credit and finances.
- The property requires repairs: Many lenders won’t lend on a property that needs repairs because it represents a greater risk in the event of a default. Properties in poor condition are more difficult to sell and will likely sell at a lower price. This makes it more difficult for a lender to recoup its losses even if it takes possession of the property. Portfolio lenders, however, can consider other strengths of your application to determine if it’s an acceptable risk.
- You need a large loan amount: Conforming loan limits typically have a maximum loan amount of $766,550. Portfolio lenders can offer financing amounts that exceed the loan limits that most conventional lenders offer even on their jumbo loan programs.
Where to Get a Portfolio Loan
You can get a portfolio from a variety of lending institutions, whether it’s a bank, loan broker, online lender, or even some credit unions. If you’re unsure where to start, check out our list of the best portfolio lenders as a starting point.
We also recommend reading our guide on how to get a small business loan. Although portfolio loans can be easier to get, that article contains tips on how you can streamline the process to get approved more quickly and at the best possible rate.
Alternatives to Portfolio Loans
If a portfolio loan isn’t what you’re looking for and you’re considering other options to finance an investment property, here are some alternatives that may apply to your business needs:
- Hard money loan: This can be a good option if you’re looking to invest in a real estate asset and need short-term financing to either fix and flip or fix and hold a property. For more information, check out our top-recommended hard money lenders.
- Friends and family loan: Outside of a lending institution, you can ask to borrow money from friends or family. These loans are less formal and can be easier to get since you won’t have to meet a lender’s typical qualification criteria. However, you will still have tax and regulatory standards to follow. You can read our guide on raising money from friends and family to learn more.
- Business line of credit: Best suited for short-term expenses, a business line of credit can be useful to finance repairs or upgrades of a property. As a revolving credit facility, you can request funds on an as-needed basis and repay the loan balance over time. Qualification criteria are typically more flexible since a property’s condition and value are not considered in the loan evaluation process. To find a provider, see our list of the best small business lines of credit.
- Home equity line of credit (HELOC): This is another type of revolving credit facility, where the lending limit is attached to the value of the borrower’s home, making it a suitable alternative for borrowers ineligible for business financing. Read our guide on using a HELOC to fund your business to learn more.
Frequently Asked Questions (FAQs)
Portfolio loans tend to be easier to get compared to traditional mortgage loans. Portfolio loans offer more flexibility with common qualifications requirements like credit score, down payment, and income. Additional flexibility can also apply to the property itself, as homes needing repairs are often eligible for financing through a portfolio lender.
Interest rates on portfolio loans will vary depending on your business needs, the loan type, and the lender you choose to work with. Portfolio loan rates tend to be higher when compared to traditional mortgages because they often allow financing with lower credit scores, down payment amounts, and properties needing repairs. In many cases, portfolio loans are used for commercial purposes. Check out our guide on commercial real estate loan rates to see what impacts the rate you get.
Portfolio lenders mainly benefit borrowers who don’t qualify for a standard mortgage loan and are looking to finance multiple properties. Generally, eligibility requirements are less strict and offer quicker access to financing than most mortgage loans.
Bottom Line
Portfolio loans can be a great financial solution for borrowers looking to finance multiple properties outside a traditional mortgage. Qualification requirements tend to be more flexible, as lenders have more control over the types of borrowers they accept because these loans aren’t sold on the secondary market. However, portfolio loan rates and fees can be higher than other types of loans, so be sure to consider all your financing options before pursuing this route.
