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Traditional vs. Portfolio Mortgage Loans

If you’re preparing to buy a new home, you’ve likely already heard all the mortgage jargon terms that lenders tend to throw around and one of the most common terms are traditional and portfolio mortgage loan options. Just from the names, it can be hard to tell what these terms may be referring to, so let’s dig into each to learn the differences and which option may be best for your financial situation.

Traditional Mortgage Loans

Traditional mortgage loans are loan programs that aren’t necessarily backed by a government organization, but they do at least adhere to guidelines outlined by government-sponsored entities Fannie Mae and Freddie Mac. These entities will buy mortgages that conform to their guidelines from lenders to sell to investors, boosting a lender’s ability to lend to more borrowers with the freed-up capital. 

Traditional Mortgage options include:

  • Conventional Loan Programs: loan programs that are not backed by a government organization but do adhere to Fannie Mae and Freddie Mac guidelines.
  • FHA Loan Program: a loan program backed by the Federal Housing Administration.
  • VA Loans: a loan program offered to military service people and their families that is backed by the Department of Veterans Affairs.
  • USDA Loans: a loan program offered to those purchasing a home in a rural area that is backed by the US Department of Agriculture.
  • Jumbo Loans: this loan program is considered a “non-conforming” conventional loan program because the loan limits exceed those set by Fannie Mae and Freddie Mac.

Traditional mortgage programs are generally regarded as an ideal choice for first-time homebuyers with good qualifications because of their standardized guidelines and lower rate options. A typical homebuyer who has a good credit score  and at least a 3% down payment (although a 0% down payment is possible with a VA loan) may find a traditional loan program that works for them.

Portfolio Mortgage Loans

Unlike traditional loan programs, portfolio loan programs do not adhere to any government guidelines. These loan programs are meant to support borrowers who may have more niche financing goals or have had trouble being approved for a traditional mortgage. Because borrowers do not have to meet specific guidelines for these loan programs, lenders have more flexibility to approve borrowers who do not have traditional means of income or may have been denied by other lenders in the past.

Warp Speed Mortgage offers the following portfolio loan programs:

  • Fix & Flip Program: a short-term business loan to purchase and rehab a home.
  • Lot & Land Loans: a loan program to help you purchase a lot to build your dream home.
  • Bridge Home Program: buy your new home and worry about selling your old home later.
  • Bank Statement Loan: use bank statements in lieu of W-2s or payroll checks.
  • Condo Hotel Financing: available for second home and investment properties.

Portfolio lenders can make their own determination regarding who qualifies for their loans and can have more lenient underwriting standards for loan applications – reviewing them on a case-by-case basis rather than against strict government-set guidelines. This makes portfolio loans ideal for borrowers who may have had trouble getting approved for a traditional loan program or for business owners or contractors who aren’t able to provide paystubs and W-2s to prove income. However, it’s important to keep in mind that a portfolio loan’s more flexible guidelines can also come with higher interest rates and additional fees.

Warp Speed Mortgage offers both traditional and portfolio loan programs to support every type of borrower out there. If you’re a first-time homebuyer, traditional loan options may be the best route for you. If you’re a business owner, however, a portfolio loan program may be better suited for your financing needs. If you’re ready to begin your home financing journey, get started today!

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