Conventional Mortgages vs. Portfolio Loans

[Hannah Wilkinson]

Hey BP Community!

As I am forming a strategy to begin financing deals I wanted to know if there was an advantage to using conventional loans until I am maxed out at my 10 mortgages (thanks Fannie) or should I go right to using a portfolio lender? The types of properties I plan on acquiring are older multi family (1-4 units) homes that are in need of rehab. I hope to use the BRRRR strategy.

Looking forward to hearing your thoughts!

[Suhan Junaid]

Hey @Hannah Wilkinson...I personally feel there are no obvious advantages to using conventional vs. portfolio lending. Portfolio lending is typically when the bank keeps the loan / mortgage on their balance sheet instead of selling (syndicating) it to other banks or credit investors. Banks typically standardize the loans they originate if they sell them off, especially to Fannie and Freddie (Fannie and Freddie are buying such large amounts of loans they have have policies dictating which loans they would like to help them - Fannie / Freddie - manage buying loans from originating banks).

Portfolio lenders can be more flexible since their credit officers are not worried about selling the loan into the capital markets. The benefit to portfolio lender is that they can work with you on a case by case basis. The downside is that the underwriting process may take longer since it's not standardized.

So I would just look at the terms being offered by either conventional or portfolio lender and see what works best for you.

In my experience conventional lenders are great for resi transactions because they can act quickly. On the commercial side, I've had the best experiences with portfolio lenders given they can be more creative / flexible with terms / structure, etc.