If you want to buy a house but can't qualify for a conventional or government-backed home loan, you may feel that home ownership is out of reach. Maybe you've had a big life change recently, 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 situation become homeowners – including portfolio loans.
Learn more: Types of mortgage loans
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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 financing. But portfolio loans work differently. When you take out a portfolio loan, the lender keeps it on their books rather than selling it on the secondary market. Portfolio mortgages are not backed by the government (like FHA, VA, and USDA loans) and are generally guaranteed, issued, and serviced by a private lender.
A portfolio mortgage works similar 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 these loans are held by portfolio lenders, they are not governed by GSE requirements. As a result, lenders “…can create their own guidelines and often make exceptions and approve loans that would be denied with traditional underwriting guidelines,” said Jennifer Beeston, senior vice president at Rate (previously Guaranteed Rate)by email.
Beeston recommended researching and meeting with multiple loan officers to see their options for your unique situation. Doing so will help you feel confident that you are working with an expert and secure the best possible deal.
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Portfolio loans are not standardized, so there are no consistent lending requirements from lender to borrower. However, Andrea “Bella” Bellony, CEO of home buying business Bellonys, said via email that the following eligibility criteria are common:
Your lender may also charge more to offset the added risk of making a loan that may not meet traditional underwriting qualifications. Your interest rate and closing costs could be higher than a conventional mortgage. You may also be subject to a prepayment penalty if you pay off the debt early.
Learn more: How does the mortgage underwriting process work?
“After you've done your research, I would suggest getting pre-approved with your top two loan officers and getting fully underwritten,” says Beeston. “Ask them to go through rates and fees and spend the time taking you through what to expect and the pros and cons of the loan product they suggest.” 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 repayment fee to allow you to refinance a (traditional) loan in the near future without having to cough up too much 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. Complete the loan and enter the repayment
If the bank approves your application, you will be given a clear-to-close. Like any other mortgage, you sign paperwork on closing day, make your down payment, and complete the transaction. Before long, you will receive your first mortgage billing statement.
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Like any financial product, there are pros and cons to portfolio loans. Here are some of the main ones:
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Potential access to finance 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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Stable relationship with the same mortgage lender throughout the term of the loan
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Potentially higher interest rates and fees than other types of mortgages
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A higher down payment is usually required
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Substantial cash reserves or assets may be required to qualify
Learn more: How to build equity in your home
“Portfolio loans are like bespoke finance solutions for those who don't tick the usual boxes,” says Yates. “I see these loans as essential for some people who are often passed over by traditional lenders – such as the newly self-employed, people with bad credit, or those who need more than the limits ordinary loan.”
Bellony said a portfolio loan could be right for you if you're trying to get back on your feet after bankruptcy or divorce. This type of mortgage could also work if you have substantial assets rather than verifiable W-2 income.
However, if you can qualify for a traditional mortgage, you'll probably want to steer clear of portfolio loans. Conventional and government home loans tend to be cheaper because they are less risky for the borrower.
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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 stems from several factors, including rising house prices that leading to jumbo loans (which the GSEs generally do not buy) and an increase in the number of self-employed professionals.
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 do not have recent tax documentation that meets traditional underwriting guidelines. In that case, your lender could grant the loan based on bank statements or other documents that prove your ability to repay the debt.
Not all banks offer portfolio loans. Portfolio mortgage lenders are generally 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.