Marijuana industry employees have been overcoming banking obstacles since cannabis was first legalized. At first, business owners and self-employed members of the cannabis industry were left to determine how to organize and successfully run an all-cash business. Down the line, as cannabis industry home loans were needed to buy personal real estate, the same issues arose.
The Federal Government classifies marijuana as a Schedule I drug, therefore federal banks cannot grant cannabis industry home loans to cannabis business owners or those self-employed for fear of breaking the law and incurring penalties. That’s where portfolio lenders come in.
What is a Portfolio Lender?
A portfolio lender is usually a small bank that uses its own money to generate loans to borrowers; the institution holds on to the debt instead of selling it off to larger companies. Portfolio lenders make their money off of origination fees when issuing the mortgage loan. They also generate revenue by holding on to that loan and earning money on the difference between interest-earning assets and interest paid.
How Can Portfolio Lenders Help with Cannabis Industry Home Loans?
The two largest mortgage investors, Fannie Mae and Freddie Mac, purchase mortgages that adhere to their strict underwriting guidelines. By only selecting safe mortgages, they mitigate risk for their investors. While Fannie Mae does grant loans to W2 employees in the cannabis industry, it doesn’t offer loans for owners or the self-employed. Since cannabis is still federally illegal, large lenders usually must say no to potential borrowers whose income source is based in the cannabis industry.
Portfolio lenders are not under as stringent of guidelines. Most often, the small, community-based institutions can lend to cannabis industry employees because the portfolio lender holds on to the loan, assuming all risk and reward. The portfolio lender also bases loaning decisions on multiple factors, instead of one rigid checklist, making it easier for cannabis owners and self-employed operators to secure a mortgage loan.
Pros and Cons of Portfolio Lenders
As previously mentioned, portfolio lenders are more flexible. They can negotiate terms, and consider various income, debt, and credit scores in order to grant cannabis industry home loans to owners and the self-employed. Even if the would-be borrower has a lower credit score, the portfolio lender may still consider the longevity of the relationship with the borrower. Portfolio lenders often look past answers on loan applications, considering the whole financial picture.
On the flip side, portfolio lenders are often not able to offer as many loan programs as large lenders. They may also charge higher interest rates to offset any additional risk they assume by holding on to the loan. Moreover, portfolio lenders charge prepayment fees, which can increase the overall amount of the loan.
Regardless of your profession or real estate desires, the mortgage process is complex and tedious. Knowing where to look for help can make all the difference in securing a loan that fits your lifestyle and budget. We would love to help you learn about mortgage options and secure your next home. Contact us today for a no-obligation consult!