Successful real estate investors know that it’s okay to think outside the box. Do things a little differently and get creative without getting stuck with tired, old methods. But it’s also just as important to know when not to get too creative, where there’s aportfolio lending difference between taking a slightly different path compared to a whole new approach altogether.

When investors finance rental properties for the long haul, the ideal source for funds for the lowest rate and fees are with conventional loans, ones underwritten to loan guidelines established by Fannie Mae and Freddie Mac.

These two mortgage giants provide lending guidelines for the number one source for investor funds and as long as lenders follow the established guidelines, the investor is rewarded with a very competitive program. But sometimes all the guidelines can’t be met. Sometimes even one seemingly meaningless loan rule is stopping the entire transaction. In such a case, lenders have little choice but to decline the application. There are rules to follow, Fannie and Freddie rules.

Yet just outside the Fannie/Freddie box is the world of portfolio lenders. A portfolio lender is so-called because it keeps loans it approves in its very own portfolio. Loans approved using Fannie and Freddie guidelines are eligible to be bought and sold in the secondary market either to Fannie and Freddie directly or to other lenders. A portfolio loan however isn’t sold and stays on the banks books until the loan is retired.

A portfolio loan is typically much shorter term in nature, with loans ballooning in two to five years, longer in some instances. A portfolio loan will have higher rates than conventional mortgages but not much higher with adjustable rates that will move with the market and not fixed rate loans.

During the course of any successful real estate investor’s career, at some point a portfolio loan will be the perfect choice. Sometimes even better than conventional fare. A portfolio lender makes its own rules and can waive them any time it sees fit.