One of the most frequent questions I hear on my blog, from emails, in investor meet ups or on forums is how to find a portfolio lender. I have a great portfolio lender who allows me to finance as many properties as I want as long as I continue to qualify and have enough reserves. Having a good portfolio lender is extremely important to my model. I would have a very hard time reaching my goal of purchasing 100 rental properties if I did not have a portfolio lender financing my properties.
Why is a portfolio lender important?
Many banks will not give you another mortgage if you already have four financed properties. There are some banks that will finance between four and ten properties, but they have huge restrictions. A few of those restrictions are a 25% down payment is required and the banks do not allow cash out refinance. There are almost no banks that will give you a mortgage if you have ten financed properties. Most banks have these restrictions because they sell their loans to investors and the investors only purchase loans that conform to Fannie Mae guidelines. A portfolio lender loans their own money and many times will allow mortgages and a cash out refinance on more than four or even more than ten properties. A cash out refinance can be a huge part of any successful investor’s strategy.
Drawbacks of a portfolio lender
Since a portfolio lender is a local bank that loans their own money they do not have to meet Fannie Mae lending guidelines when lending. That allow the portfolio lender more flexibility, but they also do not offer all of the loan programs large banks offer. My portfolio lender does not offer a 30 year fixed mortgage. They only offer a 15 year fixed, 5/30 or 7/30 ARM. To get a decent interest rate I use a 5/30 ARM on most of my rentals.
A portfolio lender will also want you to have all your accounts and money in their bank. This is usually not a big issue for most people since a portfolio lender will usually have very competitive programs and products as the larger national banks. Now on to the important stuff, how to find a portfolio lender.
Ask everyone you know
I found my portfolio lender because I am in the Real Estate business and I heard my portfolio lender was the best bank for investors. After I ran into problems with my mortgage broker financing my fifth rental property I called up this portfolio lender to see what they could offer. It took me about a week to move all of my accounts over the new bank so I could easily finance new rentals.
If you are having trouble locating a portfolio lender the first thing I would do is ask everyone you know if they know of a portfolio lender or a local bank that is investor friendly.
- Real Estate agents know many lenders and investors and may be your best source to find a portfolio lender.
- Other lenders may be able to refer you to a portfolio lender once they know they can’t do a loan for you.
- Investors in the area will know portfolio lenders, the trick is meeting them. Real Estate investor meetings area great place to meet investors and get local information.
- Ask your local bank if they are a portfolio lender or what types of investor lending programs they offer.
- Call your city of commerce department up and ask if they know who the most investor friendly banks are in town.
Search the internet
This is the easiest way to start your search for a portfolio lender. Simply search for a portfolio lender in your state on any web search engine. I have tried this a couple of times for people in different states and always get results that appear promising. Once you find a bank that mentions portfolio lending in your state, call them up and ask what type of investor loan programs they offer.
Bigger Pockets is a great Forum I have mentioned before on my blog. They have a ton of information and many people will list or mention who they use for a portfolio lender in a certain state. You can search the forum for portfolio lenders in your state or ask a question in the forum.
If none 0f the options above are working and you can’t find a portfolio lender, you may have to resort to calling local banks in your area. Call banks that are not national chains and see what type of investor loans they offer. If they don’t have what you are looking for, ask them if they know which bank might. Keep trying until you have called all the local banks you can find.
What questions to ask when calling a bank?
Many banks do not advertise they are portfolio lenders and many people working at the bank may not even know what a portfolio lender is. If you are calling up a bank and they say they aren’t a portfolio lender, don’t give up! Ask to talk to a loan officer and ask specific questions about what type of investor programs they offer. Here are some good questions to ask;
- Do you loan to investors who already have four mortgages?
- Do you sell your loans or keep them in-house?
- Do you allow investors with four or more mortgages to do cash out refinance?
- What terms and loan programs do you offer investors? ARM, 15, 30 year fixed, balloon
- What interest rates are you charging and what are the initial costs for your loans?
- What loan to value ratios to you offer investors for new purchases and refinance.
This should point you in the right direction for finding a portfolio lender in your area. If you have any questions or suggestions please leave a comment and let me know.