Need a lender with a little more flexibility and can get deals done? Let’s face it. Real estate investing can be hard, especially the financing. If your deal does not fit into the perfect little box for easy financing, you may want to consider a portfolio lender.
What Are Portfolio Loans?
A portfolio lender is a lender that loans it’s own money and keeps the loan in its own portfolio. These are most often local banks and credit unions. As a real estate investor, it is a great idea to have a solid relationship with a portfolio lender because they are able to close deals that traditional lending sources cannot. They underwrite their own loans so they have their own guidelines and can often bend in one area to get a deal closed. The biggest advantage to a portfolio lender is they do not abide by the typical conventional guidelines.
Why Opt For Portfolio Loans?
Below are several reasons you would want to use a portfolio lender:
- If you are trying to build a large rental portfolio. Conventional lenders limit the number of financed properties you can have. Once you hit that limit, you can no longer borrow from conventional lenders. To keep growing, you need a lender that does not have a financed property limit.
- Non-traditional property. If you have a property that does not conform, like improper use per zoning, or something similar, you cannot get a traditional loan. The only lenders that will look at that are lenders that have the flexibility to look past a flaw in a property.
- Credit issues. Conventional lenders hate when you have bad credit, even if it is easily explained. Recent bankruptcy or foreclosure? No way you can get a conventional loan. Portfolio lenders do not like bad credit either but at least they will listen to the reason and try to work with you. If you have a larger down payment or great cash flow, they may still give you a loan.
- Closing in the name of an entity. Conventional lenders require you to take title to the property in your own personal name. If you have a contract in the name of your company, you will not get conventional financing. Portfolio lenders do not care how you take title. In fact, it is more common for property to be owned by your entity.
- Cross collateralization or blanket financing. Need to use equity from another property as your down payment? Portfolio lenders can use multiple properties as collateral to get your deals closed.
Here is what to expect with a portfolio lender:
- 1 point in origination. A point is a percent of the loan amount in a fee.
- 25-year amortizations. A shorter term means a slightly higher payment.
- 3-5 year balloons. A balloon means you need to pay the full loan back on or before that date. Because portfolio lenders are keeping these loans, they do not want to take on too much interest rate risk. They reduce their interest rate risk by keeping terms short. That way, if rates go up they are not waiting too long to get their funds back so they can re-loan them out at higher rates.
- Oftentimes the lender will want you to make a deposit with them. It might not be a bad idea to open an account with them if they are willing to help you. It might be a good long-term relationship for you.
- Common-sense underwriting. They look at the full picture so if you are lacking in one area, you can make it up in another.
- 4-6 weeks for closing. It takes time because they need to approve the loan and then present it to a committee where it gets approved again. They can sometimes work magic and close fast but you should plan on extended closing times.
Need A Portfolio Lender? We Can Help
We have relationships with many portfolio lenders. We would love the chance to discuss your scenario so we can get you to the right lender for your project. Give us a call today and let’s see if we can help you get your deal done!
How Does It Work?
Your first step is to call our office so we can discuss your goals and your scenario. From there we will do our best to refer you to the best portfolio lender for your situation.
Each portfolio lender will have a different process but you can count on it taking a while. They will typically start with a conversation and then ask that you send in your financial statement and details on your deal. They will typically underwrite what you send within a day or two and will then have more documents they will want to collect. The initial approval process will take between one and two weeks in total.
Following the initial approval, you will be sent a term sheet which details what the lender is willing to do. This will include the loan amount, interest rate, payment terms, collateral required, if you will need to deposit with their institution, and any other major items that you would need to know. If you receive a term sheet, the chances are very high you will get the loan if you agree with the terms being offered.
At some point, the loan would need to be formally approved by a loan committee. This committee contains senior-level personnel for the portfolio lenders. They typically meet to talk about deals one time per week which can really slow you down. If you miss a week you may need to wait an entire week to get your formal approval. Many times this happens before the term sheet but some lenders will only present deals to the committee if they have a signed term sheet.
Appraisals and title work are all started after the term sheet and you will close when all the documents have been returned. This can be a slow process as it will take 2-4 days for the lender to select an appraiser and for you to hear from them to set up a time to meet.
Why Contact Pine Financial Group?
Pine Financial Group is your real estate investment financing expert and can walk through options with you. With a clear understanding of your deal, we can help guide you to the right solution. If there is a solution, we will find it!