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If you want to buy a house but can’t qualify for a conventional or government-backed home loan, it may feel like homeownership is out of reach. Maybe you've recently undergone a major life change, like switching from a 9-to-5 job to self-employment, so you're struggling to find a lender. Fortunately, alternative financing exists to help people in your position become homeowners — including portfolio loans.
Learn more: Types of mortgage loans
In this article:
What is a portfolio loan, and how does it work?
In many cases, the mortgage lender that originates your loan sells it to a government-sponsored enterprise (GSE), such as Fannie Mae or Freddie Mac, to generate new funding. But portfolio loans work differently. When you take out a portfolio loan, the lender keeps it on its books instead of selling it on the secondary market. Portfolio mortgages aren’t government-backed (like FHA, VA, and USDA loans) and are generally underwritten, issued, and serviced by a private lender.
A portfolio mortgage works similarly to a traditional mortgage in that you must apply for the loan, meet eligibility criteria, go through closing, and make monthly payments as agreed. However, since portfolio lenders keep these loans, they’re not governed by GSE requirements. As a result, lenders “...can create their own guidelines and often make exceptions and approve loans that would be declined with traditional underwriting guidelines,” said Jennifer Beeston, senior vice president at Rate (previously Guaranteed Rate), via email.
How to get a portfolio loan mortgage in 4 steps
1. Find a reputable lender
Beeston recommended researching and meeting with multiple loan officers to see their options for your unique situation. Doing so will help you feel confident you’re working with an expert and secure the best possible deal.
Read more: The best mortgage lenders for bad credit
2. Make sure you meet eligibility requirements
Portfolio loans aren’t standardized, so there are no consistent borrowing requirements from lender to lender. However, Andrea “Bella” Bellony, CEO of the home-buying business Bellonys, said via email that the following qualification criteria are common:
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Credit score: 620 to 650+
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Debt-to-income ratio (DTI): 43% or less
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Down payment: 20%+
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Cash reserves: 6 months
Your lender may also charge more to offset the additional risk of issuing a loan that may not meet traditional underwriting qualifications. Your interest rate and closing costs could be higher than a conventional mortgage. Plus, you might be subject to a prepayment penalty if you pay off the debt early.
Learn more: How does the mortgage underwriting process work?
3. Apply for the mortgage
“Once you have done your research, I would suggest getting preapproved with your top two loan officers and getting fully underwritten,” Beeston said. “Ask them to go through rates and fees and really spend the time walking you through what to expect and the pros and cons of the loan product they are suggesting.” Then, you can choose the best option.
Don’t be afraid to advocate for yourself to get a good deal. “Try to negotiate the early pay-off fee to allow you to refinance into a [traditional] loan down the line without having to cough up too large of a prepayment penalty,” suggested Randall Yates, co-founder of the VA Loan Network, via email.
Read more: How a prepayment penalty on a mortgage works
4. Finalize the loan and enter repayment
If the bank approves your application, you’ll get a clear-to-close. Like any other mortgage, you’ll sign paperwork on closing day, make your down payment, and finalize the transaction. Soon, you’ll receive your first mortgage billing statement.
Dig deeper: Closing on a house — What to expect and how to prepare
Pros and cons of portfolio loans
Like any financial product, portfolio loans have benefits and downsides. Here are some of the main ones:
Pros
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Potential access to financing when you can’t qualify for a traditional 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 loan term
Cons
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Potentially higher interest rates and fees than other mortgage types
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A higher down payment is usually required
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You may need significant cash reserves or assets to qualify
Learn more: How to build equity in your home
Is a portfolio mortgage right for me?
“Portfolio loans are like custom-fit finance solutions for those who don't tick the usual boxes,” Yates said. “I see these loans as essential for some people who are often passed over by traditional lenders — like the newly self-employed, people with poor credit, or those needing more than the usual loan 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 mortgage type 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 likely want to steer clear of portfolio loans. Conventional and government home loans tend to be cheaper because they’re less risky for the lender.
Dig deeper: How bankruptcy impacts keeping and buying a house
Portfolio loan FAQs
Are portfolio loans common?
According to data from the Urban Institute, portfolio loans accounted for more than 31% of mortgage originations in Q3 2024. Beeston said the current — and future — popularity is due to several factors, including rising home prices resulting in jumbo loans (which the GSEs generally don’t buy) and an increase in the number of self-employed professionals.
Can I refinance into a portfolio loan?
Yes, you can refinance an existing mortgage into a portfolio loan. It may make sense to do so if you have the opportunity to secure a lower interest rate but don’t have recent tax documentation that meets traditional underwriting guidelines. In that case, your lender could issue the loan based on bank statements or other documents that prove your ability to repay the debt.
Where can I find portfolio lenders?
Not all banks offer portfolio loans. Generally, portfolio mortgage lenders are smaller local credit unions or banks. You may also be able to secure a loan through an online bank, such as Axos Bank.
This article was edited by Laura Grace Tarpley.
