Can a portfolio loan help you buy a home despite credit problems?

By Michele Lerner
Mortgage Credit Problems Columnist

If you are a prospective home buyer, or a homeowner who wants to refinance, you need to provide a lender with a reason to believe that you will repay your loan. If you are uncertain of what your financial profile looks like, start by pulling your credit report and then consulting with a lender. Another way to find out where you stand with lenders is to complete the form on this page to apply for a new home loan.

What lenders look at to qualify a borrower

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Whether or not you qualify for a mortgage depends on a variety of factors such as your credit score, your job history, your income and assets and your debt. Positive factors, such as a high income and low debt, can outweigh a credit score that may have dropped due to a period of unemployment or illness.

If your credit score is currently 620 or lower, you may have trouble qualifying even for bad credit loans, since many lenders will not work with borrowers with bad credit. Some borrowers will be able to qualify for a government-insured mortgage loan such as an FHA, VA (limited to those in the military services and veterans) or a USDA loan (limited by property location), even if they have poor credit.

Options for bad credit mortgage loans

Another possibility is to apply for a loan with a portfolio lender. A portfolio lender will keep and service your mortgage loan rather than sell it to investors, which means that these lenders can establish their own guidelines for a mortgage approval rather than be forced to meet the strict requirements set by Fannie Mae and Freddie Mac.

Portfolio loans are often the only option for borrowers who need a mortgage for bad credit or who are trying to buy a property that may not meet the standards set by Fannie Mae and Freddie Mac or FHA. Not all portfolio lenders handle only bad credit loans. For example, Wells Fargo Home Mortgage and TD Bank both offer portfolio loans.

One advantage of portfolio loans over conventional financing is that you may not have to pay private mortgage insurance even if you have made a down payment of less than 20 percent. However, you should expect to pay higher fees and a higher interest rate because the lender will want to be compensated for the added risk of accepting a borrower with credit problems.

Complete the form on this page to see where you stand with lenders.

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