A portfolio loan is a loan that the originating lender retains on its own books rather than selling to investors on the secondary market, as is common with conventional mortgages packaged into securities. Because the lender holds the loan itself, it can set its own underwriting standards rather than conforming strictly to the guidelines required for loans intended for resale.
This flexibility makes portfolio loans useful for borrowers or properties that do not fit neatly into standard lending boxes, such as investors financing multiple properties under one loan, borrowers with complex income documentation, or properties needing terms outside conventional norms. Community banks and credit unions are frequent sources of portfolio lending, since they have the balance sheet capacity and local market knowledge to underwrite these loans directly. In exchange for that flexibility, portfolio loans sometimes carry higher interest rates or shorter terms than conventional financing. Sponsors assembling a capital stack for a real estate deal may use a portfolio loan when speed or flexibility outweighs the cost difference.
Further reading: The Lightstone DIRECT Opportunity Whitepaper
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