What is a Portfolio Loan & How Does it Work?
In the world of real estate financing, lenders provide a wide variety of loan options to cater to different needs and situations. A portfolio loan is one of those options, and it can be a great option for many people over other conventional loans. The main reason lenders choose to be portfolio lenders is to provide a lending option to those who may not fit conventional mortgage eligibility guidelines as part of their mission and purpose.
What is a Portfolio Loan
A portfolio lender keeps all the loans they make on their own books, which means they don't sell your mortgage to other financial institutions or Fannie Mae or Freddie Mac, also known as the secondary market. In many cases, financial institutions issue and service your mortgage but they don't necessarily own it. Portfolio lenders issue, service, and own your mortgage. WaFd Bank is a portfolio lender.
Why Lenders Sell Mortgages
As with many things, it comes down to money. When a lender sells your mortgage, they can use the money that was tied up in your loan to provide loans to other people. Since borrowers often pay origination fees to lenders, it stands to reason that the more loans a lender makes, the more money in fees they're collecting. As a portfolio lender, WaFd Bank chooses to do things a little differently and believe in the value of long-term relationships and common-sense banking.
How Does a Portfolio Loan Work
When borrowers don't meet required criteria for a conventional mortgage loan, like those sold on the secondary market to Fannie Mae or Freddie Mac, a portfolio loan can be the answer to qualifying for a mortgage. Portfolio lenders will get to the root of the issue that caused any financial issues and what actions have been taken to recover from them, which allows borrowers with blemishes in their financial history to have a chance to own a home. Other reasons that portfolio lenders can be a good option:
- Flexible Qualification Criteria:
Portfolio lenders offer greater flexibility with their qualification criteria. They're not bound by standard guidelines, allowing them to consider unique borrower situations that might not meet traditional loan requirements. Borrowers with non-traditional income sources or credit histories include self-employed individuals, real estate investors, or those with other unique circumstances.
- Non-Conforming Properties:
Portfolio lenders can also be a great option if you're looking to buy a property that doesn't fit with conventional standards. This might be something like a mixed-use property or a house that needs a lot of repairs.
- Relationship-Oriented Approach:
Lastly, portfolio lenders like WaFd Bank prefer a relationship-oriented approach. This means WaFd looks at the borrower's full financial picture, which means they're more motivated to work with borrowers to find solutions that work for everyone.
Portfolio Loans vs Traditional Loans
As a borrower, the loans are basically the same. You apply, hopefully are approved, and then move forward with the home buying process. Where there is a big difference between portfolio and conforming or traditional loans is the underwriting. There are strict guidelines for traditional loans which make mortgages eligible to be bought by Fannie Mae and Freddie Mac on the secondary market. Because portfolio loans are not meant to be sold, lenders have more flexibility when looking at approving mortgage applications. As a result, portfolio loans can be more attainable for those who don't otherwise qualify for a traditional loan.
Advantages of a Portfolio Loan with WaFd Bank
For more than a century, WaFd Bank has primarily been a portfolio lender and we prefer to keep loans on our books so we're always there to work with our clients. This means you'll know exactly where to go to talk to an experienced banker and get answers about one of the biggest investments you'll ever make. Even during hard times like the 2008 recession and the pandemic, WaFd Bank takes the time to do what we can to help people stay in and keep their homes. Another benefit is that you'll receive common-sense decisions from your local lending team. This can be especially helpful if your employment situation is out-of-the-ordinary, you're building a custom home, or you're undertaking a significant remodel after buying the house. When most lenders decide whether or not to approve your home loan application, they're often evaluating the ease of their own ability to sell your loan on the secondary market, which isn't the case with WaFd, since we are primarily a portfolio lender.
WaFd Bank is Here to Help
At WaFd Bank, we believe a loan is a commitment a local bank should make with their clients. We've got the experience and tools to make sure you stay informed along the way, like our mortgage calculator, which can help you figure out what your monthly payment could be, and a secure portal to send documents and check for status updates. Visit your local branch to find out how WaFd Bank can help you get your dream home, give us a call at 800-324-9375, or learn more about WaFd Bank's mortgage options.
All loans subject to credit approval.
