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House Calls: Portfolio Loan

Edith Lank on

Dear Edith: We have been working with a real estate agent for some time, and he says we qualify for a mortgage. We have fallen in love with a house that's more than 125 years old and has a very great backyard. Our agent says whoever buys it will have to pay all cash because it won't meet the standards for a regular mortgage loan and the owners need to get their money out right away.

We have a pretty good down payment and good credit but no place else to borrow money, so we need to get a mortgage. Can you think of any way we could buy this house? -- R. and J. W.

Answer: The first thing that comes to mind in a situation like yours is for the sellers to offer to lend the money themselves -- accepting a down payment and then holding a mortgage. They'd collect the rest of the sale price -- with interest -- over the years. Evidently, this isn't possible in their particular situation.

I suppose, though, there's no harm in trying, particularly if the house has been on the market for a discouragingly long time. You could always sign a written offer that just might tempt the owners to change their minds. It would help if you were to promise as large a down payment as you can manage.

Alternatively, are you familiar with the term "portfolio loan"?

If you got a standard mortgage loan -- let's say, for instance, a Federal Housing Administration mortgage -- your lender would most likely bundle that asset up with a lot of similar loans and sell the whole thing on what is known as the secondary mortgage market.

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You don't need to know how that works. Just take my word for it that there are institutions that invest in mortgage debts. Meanwhile your local bank, or whoever it was, gets its money back and can lend it out again. It might still handle your monthly payments, even though you now owe the debt to, say, the Federal National Mortgage Association (Fannie Mae), or perhaps to Freddie Mac.

Occasionally, though, some local lenders invest their own money in mortgages and then keep the loans in their own portfolios. And -- this is the part that is good news for you -- they can hold mortgages on any sort of real estate they want, in any condition. Sometimes, for instance, portfolio mortgages are used for jumbo loans, ones larger than Freddie or Fannie will buy.

Find out which lenders are currently making these portfolio non-conforming loans. Your real estate agent should be able to help with the research. You may want to contact a mortgage broker (different from a mortgage banker) who is familiar with the market. And if there's a local organization for antique homeowners, you might see what advice it has.

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