For real estate investors looking to expand their portfolios, a traditional mortgage may not always be the best option. Enter portfolio loans, a flexible financing solution offered by private lenders and banks. These loans can be particularly useful for investors with multiple properties, unique financial situations, or those seeking financing that doesn’t fit conventional mortgage guidelines.
In this article, we’ll explore how portfolio loans work, their benefits, and the requirements to secure one for investment properties.
What Is a Portfolio Loan?
A portfolio loan is a type of mortgage that a lender originates and keeps in its own investment portfolio rather than selling it on the secondary market (e.g., to Fannie Mae or Freddie Mac). Since these loans aren’t bound by the strict underwriting requirements of conventional mortgages, lenders have more flexibility in approving borrowers.
Key Features of Portfolio Loans
Lender Flexibility – Portfolio lenders can set their own underwriting standards.
Higher Loan Limits – Suitable for investors with multiple properties.
Non-Traditional Income Consideration – Great for self-employed borrowers or those with unconventional income sources.
Cross-Collateralization – Some lenders allow investors to use multiple properties as collateral.
Adjustable or Fixed-Rate Options – Investors may choose between different loan structures.
How a Portfolio Loan Works for Investment Properties
Unlike conventional loans that have strict borrower requirements, portfolio loans are customized to fit both the lender’s risk appetite and the borrower’s needs. Here’s how they work in the investment property space:
Loan Structure: Portfolio loans can finance a single investment property or multiple properties under one loan. This is beneficial for investors looking to streamline their mortgage payments.
Custom Underwriting: Since lenders hold these loans in-house, they can approve borrowers based on real estate experience, cash flow, and asset value rather than rigid income-to-debt ratios.
Higher Leverage: Some lenders allow higher loan-to-value (LTV) ratios, meaning investors can purchase properties with less money down.
Interest-Only Payment Options: Some lenders offer interest-only portfolio loans, reducing monthly costs and maximizing cash flow.
Faster Closings: With fewer underwriting restrictions, portfolio loans often close faster than traditional loans—ideal for competitive real estate markets.
Requirements for a Portfolio Loan
Each lender sets its own criteria, but here are the common requirements for securing a portfolio loan on investment properties:
1. Credit Score
While traditional lenders often require a minimum 680-700 FICO score, portfolio lenders may approve borrowers with lower scores (as low as 620) if they have strong compensating factors like high rental income or significant assets.
2. Down Payment
Expect to put 15%-30% down, depending on the property type, borrower profile, and lender’s risk tolerance.
Some lenders may allow cross-collateralization (using equity from other properties) to reduce the required down payment.
3. Debt-to-Income Ratio (DTI) or Debt-Service Coverage Ratio (DSCR)
Instead of DTI, some portfolio lenders use DSCR, which measures a property’s rental income against its debt payments.
A DSCR of 1.2 or higher is usually required, meaning the property generates at least 20% more income than its debt payments.
4. Property Cash Flow and Rental Income
Lenders may approve loans based primarily on the investment property’s ability to generate income.
Investors should be prepared to show rent rolls, lease agreements, and projected income statements.
5. Real Estate Experience
Some lenders prefer borrowers with prior real estate investment experience.
If you’re a new investor, strong financials, a good credit score, and a solid business plan can improve approval chances.
6. Asset Reserves
Many lenders require 3-12 months of mortgage payments in reserves.
Reserves can be in cash, stocks, or other liquid assets.
7. Property Type
Portfolio loans can finance single-family rentals, multi-unit properties, apartment buildings, and mixed-use properties.
Certain lenders may have restrictions on property conditions, so distressed properties might require additional negotiation.
Pros and Cons of Portfolio Loans for Real Estate Investors
Pros:
✅ More Flexible Qualification Standards – Ideal for investors with non-traditional income.
✅ Allows for Multiple Properties Under One Loan – Streamlines debt management.
✅ Higher Loan Amounts – Great for scaling investment portfolios.
✅ Quick Closings – Fewer restrictions mean faster approval timelines.
✅ Custom Loan Terms – Tailored to fit the investor’s strategy.
Cons:
❌ Higher Interest Rates – Since lenders take on more risk, rates can be 1-3% higher than conventional loans.
❌ Shorter Loan Terms – Many portfolio loans come with terms of 5-15 years, requiring refinancing or lump-sum payments.
❌ Prepayment Penalties – Some lenders charge penalties for early loan payoff.
❌ Higher Down Payments – While flexible, lenders often require 20%+ down to mitigate risk.
How to Find a Portfolio Lender
Since portfolio loans aren’t standardized, finding the right lender is key. Here’s how to start:
Local Banks & Credit Unions – Smaller financial institutions often keep loans in-house.
Private Lenders & Hard Money Lenders – These lenders cater to real estate investors.
Mortgage Brokers Specializing in Investment Properties – Brokers can connect you with multiple portfolio loan options.
Real Estate Investor Networks – Experienced investors often have lender referrals.
Is a Portfolio Loan Right for You?
Portfolio loans can be a powerful financing tool for real estate investors, especially those who:
Own multiple properties and need simplified financing
Have non-traditional income sources
Need higher loan amounts or more flexible approval criteria
Want to expand their portfolio quickly
However, investors should weigh the higher costs and shorter loan terms before committing. By working with the right lender and structuring the deal strategically, a portfolio loan can unlock new investment opportunities and accelerate portfolio growth.
