When it comes to home financing, you have a lot of choices to consider. A lot goes on behind the scenes in home financing, which ultimately affects what rates and terms you can get. While most mortgages are originated by a lender, then sold on the secondary market to Fannie Mae and Freddie Mac, portfolio loans are not. In this week’s blog from First Financial Bank – Bill Lavelle, learn more about portfolio loans and which clients they’re suitable for. Contact us if you live in Columbus, Dublin, Powell, or Cleveland, OH, to learn more.
The Primary and Secondary Mortgage Markets
To understand how portfolio loans work, you must first understand how primary and secondary markets work. When you choose a loan with a lender, you are receiving a loan on the primary mortgage market. The private lender you work with funds loans for many different clients. To be able to continue to fund more clients, the lender resells some mortgages on the secondary market.
Fannie Mae and Freddie Mac underwrite the secondary mortgage market, two government-sponsored entities (GSEs) that purchase mortgages from the primary market, repackage them and sell them as mortgage-backed securities. To mitigate their own risk, these GSEs will only purchase mortgages from lenders that conform to their guidelines. One of these is a lending limit. In Franklin and Delaware Counties, the limits are:
- $453,100 for a one-unit home
- $580,150 for a two-unit home
- $701,250 for a three-unit home
- $871,450 for a four-unit home
Loans that exceed these limits are a type of portfolio loan called a jumbo loan. There are other types of portfolio loans, including:
- Balance sheet loans, for investors who otherwise don’t qualify for a GSE-conforming loan because of credit score or debt-to-income ratio
- Blanket mortgage, for investors who are financing several properties with one loan
- Cash-out refinance, which allows borrowers to replace their existing mortgages with higher-value loans and receive a cash payout
Portfolio loans are riskier for lenders because when a borrower defaults on a portfolio loan, the lender is left to recover the loss. Lenders who provide portfolio loans have greater flexibility to approve whoever they choose, and they do so for various reasons. Some do so because of long-standing relationships with clients. Others specialize in funding fix-and-flip investors, who need fast access to funds. If you’re in need of a portfolio loan, your mortgage agent can help you compare rates from several national lenders who offer portfolio loans.
If you’d like to learn more about portfolio loans or other types of home financing, contact First Financial Bank – Bill Lavelle. Bill offers free quotes and consultations for clients in Columbus, Dublin, Powell, and Cleveland, so call today for more.