topic Portfolio product? in Mortgages

Portfolio product?

Schnitzel777 — Sat, 10 Mar 2012 22:56:12 GMT

What is a portfolio product? Why do I need one if I am self employed?

Re: Portfolio product?

Yokamal — Sun, 11 Mar 2012 13:16:06 GMT

I'm not a mortgage expert, just a home buyer -- but....

Essentially, most mortgages lent by banks in the US are actually provided under product guidelines established by Fannie Mae or Freddie Mac. When a bank has issued enough of these mortgages, they can sell them to Fannie or Freddie who pool the mortgages, securitize them, and then sell shares of them in the fixed equities markets.

Banks however do look for ways to capture more value (i.e. profit) for themselves by serving niche markets outside the guidelines. They collect these loans in a "portfolio" which they either securitize themselves for the fixed equities markets, or gather investors (i.e. hedge funds). An example might be a bank that says its going to collect a portfolio of loans that offer higher debt to income ratios for graduating law students working at a law firm. These students might not fit the DTI for a Fannie/Freddie product, but are still a good bet since they are unlikely to default and have a high income potential. The bank hopes to capture unserved customers and get above market returns as well.

Because you're self employed, you may not fit into the increasingly strict Fannie/Freddie guidelines and need to find a bank that has a special portfolio loan for your specific profile.

Hope this helps, Kamal

Re: Portfolio product?

WinaltHome2011 — Mon, 12 Mar 2012 10:45:46 GMT

Whether you are self-employed or not, a portfolio product is what shows your skills and knowledges/capabilities as a professional individual in your chosen industry / career.

It is very important as well to have at least one to let other businesses / clients that you have possibly the skills that you are looking for, or the knowledges and results that you may deliver to them.

Re: Portfolio product?

huruta — Wed, 14 Mar 2012 04:21:27 GMT

Yokamal did a nice job summarizing. I'd add that I think that Freddie/Fannie require a two-year self-employment history so if you don't have that, you may need a portfolio loan. I think there is a lot of variation in the portfolio products different lenders have available to them so you might benefit from shopping around to see given your occupation and other details which has the best product that fits your needs. Good luck!

Re: Portfolio product?

Schnitzel777 — Mon, 07 May 2012 03:40:12 GMT

Thanks everyone for the explainations and thoughts!

Got a portfolio loan! Not so bad at 4,125% no PMI! Way better deal than the FHA, not quite as good as a conventional loan!
Thanks!

Re: Portfolio product?

indieboy — Mon, 07 May 2012 03:44:28 GMT

Dear Scnitzel,

Can you please share some more details?

How much was the loan amount? How much was the down payment? Am assuming 4.125 for a 30year fixed. How did you go about getting this loan? I am exploring some loan options, so this info could be very useful.

Thanks

Re: Portfolio product?

Schnitzel777 — Mon, 07 May 2012 04:58:22 GMT

Loan was close to 300K, not including the 20% down I had in cash

Yes it was 30 year fixed through Bank of America (no points, no commission but there was a $650 loan fee)

When I shopped around mid-March, 4.25% seemed to be the going priice (Sterling Bank and Was Fed), but they both had hefty 1% commission fees as well. Wells Fargo doesn't do portfolio loans.

I heard recently that Key bank also does portfolio loans, and I have a colleague who got one for 3.875%, so that bank would probably also be worth looking into!

Good luck!

Re: Portfolio product?

RonSchwartz — Mon, 07 May 2012 15:46:27 GMT

Portfolio products are, as stated by our prior contributor, loan programs offered by your lender that will not have to conform with Fannie/Freddie guidelines (AKA Conventional/Conforming Loans).

There isn't anything about being self-employed that prevents you from obtaining conventional financing. But under such financing guidelines your income will be calculated based on your Adjusted Gross Income primarily. The Adjusted Gross Income on your Federal Tax Returns appears on line 37 of Page one. For many self-employed borrowers this is known as "After Expenses" and can be problematic.

The simple fact is that self-employed borrowers do write-off many expenses and are adversely impacted due to this when it comes time to qualify for a Mortgage. A seasoned loan officer can look at your income information and through some conforming guidelines provide some relief via allowable items that can be added back under the underwriting guidelines. Examples of such items are found on Schedule E of most returns for Self-Employed borrowers amounting to paper losses such as:

Depreciation
Depletion
Etc

Most portfolio programs at larger lending institutions are based on the same guidelines as conventional loans. However, there are often diffences in the guidelines that allow for more aggressive interpretations of income.

Helpful?

Ron

Re: Portfolio product?

huruta — Tue, 08 May 2012 00:13:48 GMT

Congrats!

Schnitzel777 wrote:
Thanks everyone for the explainations and thoughts!
Got a portfolio loan! Not so bad at 4,125% no PMI! Way better deal than the FHA, not quite as good as a conventional loan!
Thanks!

Re: Portfolio product?

huruta — Tue, 08 May 2012 02:18:54 GMT

indieboy wrote:
Dear Scnitzel,
Can you please share some more details?

How much was the loan amount? How much was the down payment? Am assuming 4.125 for a 30year fixed. How did you go about getting this loan? I am exploring some loan options, so this info could be very useful.
Thanks

You might check out Key Bank. We got a portfolio loan with them with great terms (30-year fixed, 3.875% in March, no PMI, for a loan above high conforming limits in Seattle).