What Is a Portfolio Loan? A Complete Guide for Investors

Are you seeking a business loan that operates according to a distinct set of guidelines? If yes, then the portfolio loan might be the perfect solution for you.

Unlike traditional loans, which may be transferred to investors elsewhere, Portfolio loans remain with the lender who originally issued them. The lender that originated the loan has more control in determining rates, terms, and conditions it can impose on loans, particularly because it is not concerned about third-party requirements.

As an underwriter, I enjoyed taking on a portfolio loan. I’ve always felt apprehensive about refusing low-risk loans simply because they weren’t a perfect fit within an investor’s criteria for eligibility. But I really enjoyed examining financial documents and assets to identify reasons to justify the decision to proceed with a loan.

How Portfolio Loans Differ From Traditional Financing

A portfolio loan is different from traditional financing in that the lender keeps the loan in-house rather than selling it to marketplaces. That allows the lender more flexibility in underwriting; however, this usually results in more expensive rates or fees.

Traditional loans tend to be more stringent regarding the particular criteria that must be fulfilled. I prefer to consider traditional loans as being a more suitable option for those who are in “normal” circumstances and can complete every item in the listing of criteria for a loan.

It could be someone with an ongoing job that is easily documented, and all of their income, down payment, credit, and collateral are within the approval guidelines. In these situations, people who are “inside the box” make it easy to demonstrate that they’re low risk.

Portfolio loans are for people who aren’t in this box.

For example, a borrower with no steady job or who fails to meet a single standard approval requirement can still qualify as a portfolio lender, which can consider specific or compensating elements. A good example is allowing more debt repayments when the borrower can demonstrate significant savings or assets to counter any risk increase.

Also read: What Are Land Loans? Complete Guide to Plot Purchase Financing

Portfolio Loan Types, Rates, Terms & Requirements

The rates, terms, and conditions for portfolio loans are subject to change in accordance with your needs for business and the lender you are working with. They are also determined by the purpose of your loan and the amount of your loan. For instance, the portfolio loan can be used to buy several properties simultaneously.

Here are a few common types of portfolio loans:

1. Purchase: As it sounds, it’s an offer to purchase the property.
2. Cash-out refinance: For existing properties in which owners want to change the equity into cash.
3. Blanket: A Mortgage loan that combines multiple properties or pieces of land to form one payment.
4. Jumbo: Most often, large loan amounts that exceed standard geographic loan limits.

Common Types of Portfolio Loans

1. Purchase portfolio loan

A purchase portfolio loan can be used to buy a property that might not otherwise qualify for a loan due to needed repairs. In contrast, traditional lenders typically require that the property be in good order and free of any health or safety risks. This helps reduce the risk for the lender and ensures that, in the event of default, it is more straightforward to sell the property and recover the loss.

If you’re planning to purchase a home that isn’t suitable for conventional financing, think about a portfolio loan to purchase the property. Then, you can make the required repairs. The fees and rates are generally more expensive to reflect the greater risk of loss for the lenders. Based on your credit score and financial situation, you might be required to make an additional down payment or show evidence of your cash reserves.

Typical Rates and Terms

• Loan amount: Up to $806,500
• Starting interest rate: 7.75%
• Repayment term: Up to 30 years

Typical Qualifications

• Loan-to-Value (LTV) ratio: Up to 95%
• Credit score: 550 to 620+
• Debt-to-Income (DTI) ratio: Up to 55%
• Cash reserve requirements: 0 to 6 months

2. Cash-out refinance portfolio loan

With a cash-out refinance, you can convert your home equity into cash that you can then use for different purposes. Cash-out refinances essentially give you a loan amount that is greater than the amount needed for the repayment of your current mortgage loan on the property. After the balance of the loan and loan charges are accounted for and the balance is paid, it will be transferred to your bank account.

To refinance your cash-out, you’ll require a substantial amount of equity in your property. Most lenders will need an appraisal of your home to determine its current value. The amount of mortgage loans for the property and the LTV ratio for the lender’s maximum will determine the maximum loan amount.

Typical Rates and Terms

• Loan amount: Up to $806,500
• Starting interest rate: 7.75%
• Repayment term: Up to 30 years

Typical Qualifications

• LTV ratio: Up to 80%
• Credit score: 620+
• DTI ratio: Up to 45%
• Cash reserve requirements: 6 to 12 months

3. Blanket mortgage portfolio loan

With the help of a “blanket mortgage,” you can buy multiple properties or parcels of land secured by a single loan. This will streamline the financing process and make it easier to finance each home individually.

Blanket mortgages also make it easier to make loan payments, since you only have one payment to cover a variety of financed properties. They’re usually designed to permit the release of a mortgage lien against specific properties. In this case, it can be based on the conditions of the loan agreement; however, lien releases are usually activated upon the sale of the house or when the loans are paid.

This flexibility makes blanket mortgages a preferred option for investors who want to purchase a home subdivision, since it permits the sale of individual homes without having to repay the entire blanket mortgage loan amount.

Typical Rates and Terms

• Loan amount: $50 million and up
• Starting interest rate: 5%
• Repayment term: Up to 30 years

Typical Qualifications

• LTV ratio: 80% and under
• Credit score: 620 to 650+
• DTI ratio: Up to 45%
• Cash reserve requirements: 6 to 12 months

Also read: How to Increase Your Chance of Getting a New Mortgage

4. Jumbo portfolio loan

Jumbo portfolio loans typically comprise higher loan amounts, which exceed the FHFA’s standard loan limits. These limits are subject to change every year and are based on factors like your property’s area and property type.

In 2025, most loan amounts that excess $806,500 will be deemed to be Jumbo loans. However, the amount could be different based on a particular property’s features, including whether it’s a one-unit or multi-unit property.

Typical Rates and Terms

• Loan amount: $5 million and up
• Starting interest rate: 7.5%
• Repayment term: Up to 30 years

Typical Qualifications

• LTV ratio: Up to 80%
• Credit score: 680+
• DTI ratio: Up to 45%
• Cash reserve requirements: 12 to 24 months

Advantages and Disadvantages of Portfolio Loans

Advantages

• More flexible qualification requirements for credit score, income, and assets compared to other CRE loans
• Larger loan amounts available than standard residential mortgages
• Customizable loan terms to match specific investment or business needs
• Properties requiring repairs or renovations are more likely to qualify for financing

Disadvantages

• Higher interest rates and closing costs compared to traditional mortgage loans
• Fewer consumer protections against predatory lending practices than conventional mortgages
• Limited availability makes these loans harder to find than traditional financing options
• Prepayment penalties may apply to certain loan agreements

Who Should Consider a Portfolio Loan?

If you’re planning to invest in real estate but are unable to get approval for traditional financing options, then a portfolio loan might be the best option. The general rule is that portfolio lenders are more flexible in terms of not just establishing the requirements for qualification at the beginning, but also making credit policy exceptions.

Here are some possible scenarios in which the portfolio loan could be an option:

• You have poor credit scores or other credit problems: If your credit score isn’t quite sufficient for other lenders and portfolio lenders, they may be willing to consider financing you if other factors can be considered as compensating, for example, such as a high-revenue or a substantial down payment. This is also the case when the credit rating is high; however, you’ve been denied access to any other lender due to negative information on your credit reports, like bankruptcies or outstanding collection accounts.
• You earn money from irregular sources: Traditional lenders typically require a stable stream of earnings that is easily recorded. If your earnings aren’t easily traceable or otherwise unstable, the portfolio lender may be more flexible in considering other methods to verify income.
• You don’t have the funds to make a down payment: Based on the kind of loan you’re hoping to obtain, traditional lenders might require a substantial down payment to get the loan. Portfolio lenders, however, can permit smaller down payments, particularly if you have strong credit and financial resources.
• The property needs repair: Many lenders won’t loan on a property that needs repairs, because there is an increased chance that the property is in default. Poorly maintained properties tend to be harder for sellers, and they will most likely be sold at a lower price. This can make it difficult for a lender to recoup its losses even if it does take ownership of the home. However, portfolio lenders will consider the other strengths of your proposal to determine if it’s a good risk.
• You need a large loan amount: Limits on conforming loans generally have a maximum amount of $806,500. Portfolio lenders may offer financing amounts with loan limits that conventional lenders provide, even for their Jumbo loan programs.

Also read: 15 Finance Companies For Small Business Loans with Bad Credit score

Best Alternatives to Portfolio Loans for Investors

If a portfolio loan isn’t what you’re seeking, and you’re looking at alternatives to finance your investment properties, we’ve got a few alternatives that might be suitable for your business needs:

• Hard money loans: A hard money loan is an option for you if you’re trying to invest in a real estate asset and require short-term financing for fixing and flipping, or to fix and hold a property.
• Friends and family loans: Outside of a lender, you can borrow money from your family and friends. It’s a more informal choice and may be easier to acquire since you don’t have to meet a lender’s standard qualification requirements. But, you’ll still have to use an applicable federal rate (AFR) in addition to following the rules and regulations governing taxation.
• Line of Credit for Business: Best suited for short-term costs and expenses, the business credit line could be useful in financing home repairs or renovations. It is a revolving credit facility, which allows you to request the funds you require and pay the balance on time. Criteria for qualifying are usually more flexible as the property’s condition and worth aren’t considered in the process of evaluating loan applications.
• Home equity line of credit (HELOC): This is a different type of revolving credit facility, where the loan limit is tied to the value of the home being financed, and is a good alternative if you’re not eligible for business financing.

Final Thoughts

A portfolio loan offers flexibility that traditional mortgages often can’t provide. While higher costs and fewer protections are trade-offs, these loans can be powerful financing tools for investors and borrowers with unique needs. If conventional financing isn’t an option, a portfolio loan may be the solution that helps you move forward.

FAQs: Portfolio Loan