Portfolio Loans Explained

By on January 15, 2009

When Freddie Mac and Fannie Mae announced their new lending rules last August, I started telling everyone who would listen that they need to start using portfolio loans to finance their investments. That generated hundreds of questions from investors who want to know more about portfolio loans and some seem to be a little confused. So, let’s break it down.

A portfolio loan is just a loan that is made by a lender that does NOT get sold into the secondary market i.e. Fannie Mae and Freddie Mac. These lenders are typically small banks and credit unions. Because they don’t sell the loan off to Freddie or Fannie, they don’t have to follow any of the stupid new rules such as a maximum number of 4 financed properties and no unseasoned cash out. There are portfolio lenders out there that allow an unlimited number of financed properties and unseasoned cash out.

I spoke with an investor a few days ago who has 7 financed properties with Wells Fargo and he was certain they are a portfolio lender because he sends his payment to them every month. He was surprised that they refused to refinance any of the loans because of the “max 4 financed property rule.”

Well, Wells Fargo is NOT a portfolio lender. They are a conventional lender. They sell their residential loans to Freddie Mac which means they have to follow the Freddie rules (bad). They have retained the servicing rights which is why the payment still goes to them every month but make no mistake, they will not do anything cool.

So, what kind of loans do portfolio lenders make? Lots, but the ones we are concerned with are LLC loans, blanket loans and master loan commitments. Let’s look at each one individually.

LLC Loans
Portfolio lenders will originate and close a loan in the name of your LLC. That means it doesn’t report to your personal credit report. The LLC does not have to be two years old and does not have to have any assets or cash flow. You are still personally guaranteeing the loan, it just won’t show up on your personal credit which means if you want to get a Fannie or Freddie loan you can.

The credit report is what tells the conventional lender’s underwriter how many properties you have financed so if you have 25 LLC loans but none are on your personal credit, then the underwriter at Wells will write ZERO in the box that asks for the number of financed properties you have.

Blanket Loans
A blanket loan means one loan that “wraps” many individual loans into one loan. If you have 25 LLC loans, you make 25 checks out each month, pay 25 tax bills and pay 25 insurance bills. Plus you have 25 different rates. And if they are adjustable rates, good luck trying to keep up with when they need to be refinanced.

A blanket loan will take all 25 of those loans to make one big loan requiring one payment each month at one rate. This is a cool strategy for people that are buying or refinancing in bulk since its one loan that goes through underwriting; not 25.

One thing to watch out for on these loans is the release policy which is what happens when you want to sell or refinance one property that is in the blanket. Some lenders will allow it with a fee, some won’t allow it at all and will call the whole blanket loan due and others will require a substitution of collateral. That means you’ll have to put another property of equal or greater value in the blanket to take the place of the property you’re taking out.

Master Loan Commitments
Once you establish a good relationship with a portfolio lender, you can take your business to a whole new level with a master loan commitment. Let’s say you are a rehabber that likes to keep properties long-term as rentals. You buy them with hard or private money, fix them up and then you refinance them. If you are using conventional lenders, you can only have three rentals TOTAL because that maximum 4 financed properties rule includes your primary residence.

Well, you can negotiate a deal with the portfolio lender where they agree to refinance all your FUTURE deals up to $1, $2, $3 even $5 million dollars over a 12 month period. That way you’ll never have to worry about where the refinance will come from or IF it will actually go through.

That’s just a few of the cool loans you can do with portfolio lenders.

Click here for instant access to my portfolio loan video training

About Susan Lassiter-Lyons

Susan is the author of Mortgage Secrets for Real Estate Investors and founder of the award-winning real estate blog, TheInvestorInsights.com. A real estate investor since 1994, Susan has raised $26.2 million in private money and participated in more than 600 transactions as an investor, broker, lender, syndicator and advisor. Susan is a dedicated trainer and her training, seminars and coaching programs have transformed the lives and businesses of thousands of real estate investors worldwide.

19 Comments

  1. Susan Kishner

    January 15, 2009 at 7:29 pm

    Hello. I was reading someone elses blog and saw you on their blogroll. Would you be interested in exchanging blog roll links? If so, feel free to email me.

    Thanks.

  2. Tim Hoelle

    January 25, 2009 at 6:56 pm

    I enjoy your newsletter and blog!

    My business partner and I are searching for a loan partner on a portfolio that includes about 14 SFR rentals. In doing some research we’ve been cautioned against having all properties in one loan and one document. As you describe, taking one property out of the “wrap” can create some problems.

    Our sense is that lenders are very rigid in just about every way possible, but is it your experience that there are banks that will negotiate the “release policy”?

  3. Susan Lassiter-Lyons

    January 26, 2009 at 10:06 am

    Hi Tim, they will all have varying release policies. Some will call the entire loan due, some will allow a partial release with a fee and some will require substitution of collateral. They *may* negotiate. Never hurts to ask.

  4. Hanna V

    January 29, 2009 at 2:53 pm

    Hi,

    I think your article on Portfolio Loans is very informative. I would never have thought about such an option.
    Do you know any portfolio lenders in SC for “condo-tels”?
    If so, please let me know.

  5. Shawn H

    October 4, 2010 at 3:07 pm

    Think about getting back into real estate investing. Can these loans be used to cash out properties purchase subject to or on a land contract?

    • lassiter

      October 4, 2010 at 7:33 pm

      Some portfolio lenders will consider that a vested interest and refinance instead of force you into a purchase loan. Cash out may be tough but rate and term will be OK as long as they cash flow.

  6. Willie Balthrop

    October 5, 2010 at 8:48 pm

    Susan,
    A quick question. I have a property that I hold title in my LLC even though i signed personally and I’m looking to refinance it and pull cash out. Only talking about 45K. Current loan in only $53K, property value is about $152K. The issue I’m running into is I’m working w/ a new loan broker to expand my options/resources and I made it clear how title is held and asked if it would be a problem or if I needed to transfer into my name personally. He told me that it would be no problem. Lender is Wells Fargo and I’ve provided every document they’ve asked for, personally and financially. Finally after 90 days, the broker is coming back and saying they (Wells) have some concern because they want me to transfer the loan into my name and season it for 6 months. What other alternatives would you recommend? I put everything on the table in the beginning and I think the broker failed to relay the information to Wells and now we’re delayed when closing was supposed to be Sept 28th. I think the broker held back and now since this has come up is trying to put the blame on Wells. Any suggestions would be greatly appreciated. I believe I need to find a lender that will allow investors to hold title in their LLC.
    Thanks…

    • lassiter

      October 6, 2010 at 11:37 am

      Wells is a Freddie Mac lender so your broker is just uneducated or thinking they will make an exception to their underwriting guidelines (which they won’t). It’s futile. They won’t do what you want they are bound by the Freddie rules and that’s quit claim out of the LLC and season. You need to find a portfolio lender that will refinance in the name of your LLC.

  7. Adam

    November 5, 2010 at 7:07 pm

    Hi Susan,

    Quick question – Are Porftolio Loans available to US non-residents who are investing in US real-estate? And still holding properties in a US LLC?

    Thanks,

    Adam.

    • lassiter

      November 7, 2010 at 8:56 pm

      Some lenders will allow them. It’s case by case as all portfolio loans.

  8. Adam

    November 11, 2010 at 6:18 pm

    Thanks Susan – your website is very informative and credible.

    If there is the possibility that PL’s will lend to foreign investors (i.e from Canada or Australia), then I will be interested in trying your Portfolio Loan Blue Print.

    I appreciate most Porftolio Lenders wont, but if there are a selected few PL’s that will, then great.

    I understand that certain conventional US lenders will lend to foreign investors generally on the basis of a higher down payment than normal, but the latest industry restrictions you have mentioned in your reports does not make this option attractive.

    Since PL’s don’t have to follow the industry standard rules, and that decisions would mainly be based on the profitabiliy/cash flow of the property in question (and the loan being secured by real estate), and treated like a business (LLC etc), not as an individual, then I would of thought its irrelevant if you are a US citizen or not?
    Income/asset verification from resident country can still be provided if required and my foreign investment business would still be US incorpated and investing as a US business (LLC etc) like any one else.

    Would the process of obtaining portfolio loans (Also for re-financing and cash out) be alot easier for those foreign nationals who already have existing investment proporties in the US (i.e. with equity and positive cash flow) that could be used as security/collateral for Portfolio Loans (including re-finances and cash out) for additional property investments?

    Many thanks.

    Adam.

    • Susan

      February 5, 2012 at 2:01 pm

      Yes, since they already have a list of real estate owned that the lender can analyze plus a documented history of managing properties from a distance.

  9. Michelle

    July 26, 2011 at 3:35 pm

    Hi Susan,
    I’m looking at purchasing a rental property for $100,000 that’s valued at about $125,000. With a decent loan it would cashflow $500-600/mo. based on the rental market where it’s located. I need to make a decision quickly and am wondering whether or not a portfolio loan would be feasible for me. This would be me and my company’s 1st rental property and we’re a fairly new company. Do portfolio lenders require a certain LTV or business history? Would my business partner and I be good candidates for this based on the info I’ve given you? Thank you in advance for your help.

    • Susan

      July 26, 2011 at 3:39 pm

      Calculate the Debt Coverage Ratio and as long as you are at 1.25 or above they will consider it.

  10. dan

    February 5, 2012 at 1:14 pm

    Hi Susan, How can I make money with bulk properties? Do you offer a course with this blueprint?

    • Susan

      February 5, 2012 at 2:00 pm

      Hi Dan, yes it’s at htp://www.buyingbulkreo.com

  11. Tien

    March 6, 2013 at 11:09 am

    hi Susan, I’m self-employed, I have a salon business for 7 months now, and just filed my tax, so i only have one good year of income, but banks refuse to give me a mortgage loan, I heard that i could go through portfolio lender, any suggestion? Thanks

  12. Banky

    October 19, 2013 at 9:17 pm

    Hi Susan,

    This information is very helpful – just what I was looking for, so thank you.

    Do you also happen to know if they’ll consider using my spouse’s income without adding him to the mortgage? I basically have a much higher credit score, but my husband makes a lot more money. He’s onboard with this plan – however, I need his income to qualify. I was only approved for 150k with my income. He makes close to 100k/year.

    Thank you.

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