If you ought to buy a house but can’t qualify for a standard or government-backed home loan, it could feel like homeownership is out of reach. Perhaps you’ve got recently undergone a significant life change, like switching from a 9-to-5 job to self-employment, so that you’re struggling to seek out a lender. Fortunately, alternative financing exists to assist people in your position turn into homeowners — including portfolio loans.

Learn more: Varieties of mortgage loans

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In lots of cases, the mortgage lender that originates your loan sells it to a government-sponsored enterprise (GSE), resembling Fannie Mae or Freddie Mac, to generate recent funding. But portfolio loans work otherwise. If you take out a portfolio loan, the lender keeps it on its books as a substitute 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 personal lender.

A portfolio mortgage works similarly to a standard mortgage in that you will need to apply for the loan, meet eligibility criteria, undergo closing, and make monthly payments as agreed. Nevertheless, since portfolio lenders keep these loans, they’re not governed by GSE requirements. Because of this, lenders “…can create their very own guidelines and sometimes make exceptions and approve loans that may be declined with traditional underwriting guidelines,” said Jennifer Beeston, senior vp at Rate (previously Guaranteed Rate), via email.

Beeston really helpful researching and meeting with multiple loan officers to see their options to your unique situation. Doing so will make it easier to feel confident you’re working with an authority and secure the perfect possible deal.

Read more: The most effective mortgage lenders for low credit score

Portfolio loans aren’t standardized, so there are not any consistent borrowing requirements from lender to lender. Nevertheless, Andrea “Bella” Bellony, CEO of the home-buying business Bellonys, said via email that the next qualification criteria are common:

Your lender might also charge more to offset the extra risk of issuing a loan that won’t meet traditional underwriting qualifications. Your rate of interest and shutting costs may very well be higher than a standard mortgage. Plus, you may be subject to a prepayment penalty in the event you repay the debt early.

Learn more: How does the mortgage underwriting process work?

“Once you could have done your research, I’d suggest getting preapproved along with your top two loan officers and getting fully underwritten,” Beeston said. “Ask them to undergo rates and charges and really spend the time walking you thru what to anticipate and the professionals and cons of the loan product they’re suggesting.” Then, you possibly can select the perfect option.

Don’t be afraid to advocate for yourself to get an excellent deal. “Try to barter the early pay-off fee to help you refinance right into a [traditional] loan down the road 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 several 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 anticipate and tips on how to prepare

Like several financial product, portfolio loans have advantages and disadvantages. Listed below are a number of the foremost ones:

• Potential access to financing when you possibly can’t qualify for a standard mortgage

• You’ll be able to start constructing equity and hopefully improve your financial situation

• A stable relationship with the identical mortgage lender throughout the loan term

• Potentially higher rates of interest and charges than other mortgage types

• The next down payment is often required

• You might need significant money reserves or assets to qualify

Learn more: The best way to construct equity in your own home

“Portfolio loans are like custom-fit finance solutions for individuals who don’t tick the same old boxes,” Yates said. “I see these loans as essential for some people who find themselves often omitted by traditional lenders — just like the newly self-employed, individuals with poor credit, or those needing greater than the same old loan limits.”

Bellony said a portfolio loan could also be best for you in the event you’re attempting to get back in your feet after a bankruptcy or divorce. This mortgage type could also work if you could have significant assets fairly than verifiable W-2 income.

Nevertheless, in the event you can qualify for a standard mortgage, you’ll likely wish to avoid portfolio loans. Conventional and government home loans are likely to be cheaper because they’re less dangerous for the lender.

Dig deeper: How bankruptcy impacts keeping and buying a house

In line with data from the Urban Institute, portfolio loans accounted for greater than 31% of mortgage originations in Q3 2024. Beeston said the present — and future — popularity is as a consequence of several aspects, including rising home prices leading to jumbo loans (which the GSEs generally don’t buy) and a rise within the variety of self-employed professionals.

Yes, you possibly can refinance an existing mortgage right into a portfolio loan. It could make sense to achieve this if you could have the chance to secure a lower rate of interest 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.

Not all banks offer portfolio loans. Generally, portfolio mortgage lenders are smaller local credit unions or banks. You might also give you the chance to secure a loan through an internet bank, resembling Axos Bank.

This text was edited by Laura Grace Tarpley.