GOVERNMENT BOND PROGRAMS
Sometimes simply called “Bond Money,” these programs are typically dedicated to the first-time buyer and provide below- market rates from state- or city-sponsored bond programs.
Such programs typically require that the buyer take a homebuyer's education course and that the property be in a particular ZIP code or part of the city. There are other bond programs designed for teachers and public servants. Some states even offer additional mortgage rate incentives to qualified veterans.
These bond programs are used to lower the mortgage rate on a conventional loan program and, depending upon the current market conditions, can be much lower than what is available. For instance, at one point, the Texas Veterans Land Board offered interest rates in the 4 percent range compared to conventional interest rates that were in the mid-6 percent range.
Bond programs are issued annually. Once the bond money is gone, buyers must wait until the next bond issuance before new funds become available.
Although conventional and government loans are underwritten to exact standards established by Fannie Mae, Freddie Mac, FHA, and VA, sometimes the situation arises where either the borrower or the property doesn't quite fit the mold for any of these types of loans. What to do?
Get a portfolio loan — so named because the lender has no intentions of selling the loan, ever. Instead, the loan is kept in- house, or in the lender's “portfolio.”
A common portfolio loan would be for someone who owns a lot of mortgaged real estate.
Co-ops will typically have a greater share of portfolio financing when compared to government or conventional financing simply because there are fewer portfolio lenders.
Or a lender would have a stem rule on someone being self- employed for a minimum of two years or that there is income that the buyer has but the lender won't recognize. Whatever the reason, a portfolio loan can be an alternative to traditional lending.
Portfolio loans aren't for people with poor credit — far from it. Banks can make a portfolio loan, but they have to be 100 percent convinced they're making the right decision. If a portfolio loan goes bad, it stays on the banks books.
Portfolio loans are made to loyal bank customers who have a previous relationship with the buyer. The bank may have made a business loan to the buyer or the buyer keeps all his business and personal accounts with the bank. The bank knows the portfolio borrower by name.
Portfolio loans are relatively shorter in term — say three years or so — and are used simply as a short-term vehicle to acquire the property. The strategy is to get the condo with portfolio financing, then “fix” whatever is keeping the buyer from getting conventional financing during the term of the portfolio loan.