You know that your credit is good. You certainly make enough money and it's obvious that you can afford the new mortgage. So why did the lender suggest a "Portfolio" loan when you didn't qualify for a conventional mortgage? Good question. Why indeed?

The term "portfolio" doesn't mean anything inferior. It's not where bad people go to get a home loan. It simply means that the portfolio lending institution doesn't plan to sell your loan to anyone else, and instead intends to make money every month from the interest you pay. The lender keeps your loan in their "portfolio". Loosely defined, it can mean a loan program that doesn't conform to traditional underwriting guidelines such as those issued by Freddie Mac or Fannie Mae.

When do you want one? Perhaps when your application fits just outside conventional lending guidelines. Let's say that a 4 unit investment property comes on the market both at the right time and at the wrong time. At the right time because the price is well below market but at the wrong time because you can't come up with the money fast enough for the down payment. If you went with a conventional mortgage, the down payment requirement could be as high as 25% of the purchase price. And you may not exactly have that kind of money in your sofa cushions.

But perhaps there are lenders who will make such a loan with little or no money down, and keep that loan in their portfolio. Or perhaps you want to build not just one, but two houses at the same time. One for you, and one for a rental. But your ratios won't let you do both, and without loan approval for the permanent mortgage you also find you can't get construction funds. Again, check into portfolio products.

Historically, portfolio loans were issued by banks or thrifts that would be more than happy to make loans that just don' t quite "fit" the conventional market, yet make good sense from a financial perspective. And if you already had a relationship with that bank, maybe that bank would make a loan based upon things other than down payment and debt ratios. Lenders make money making loans. If they don't make loans, they won' be lenders very long. But now, there are lenders who can offer a variety of loan programs that fit their own specific lending requirements, not just banks and thrifts.

If your present financial situation doesn't quite meet conventional requirements or the deal you're wanting to finance falls just a little beyond what most lenders are comfortable with, ask for portfolio product. You might be surprised at all that's available in the world of finance.

Published: April 26, 2002

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.