Alt-A loans are the borrower classification between subprime and prime. Alt-A loans will usually have a higher interest rate that prime loans. Alt-A loans will also have the ability to borrow a lower percentage of the home value than prime loans.
Alt A mortgage is an alternative for home buyers with good credit profiles and yet for one reason or another cannot meet the qualification of prime (A paper) mortgage. Alt-A mortgages are not considered subprime loans because most alt-A borrowers have excellent credit scores.
Some Alt A loan borrowers are simply borrowers who do not qualify for a traditional A paper loan because they are just slightly deficient in a certain area. For instance their credit score may be just slightly too low, or they may not have enough asset documentation to qualify for the A paper loan.
Alt-A Loans typically carry a slight premium to the interest rate of traditional A paper loans sold to Fannie Mae or Freddie Mac loans. Investors often find they need to use Alt-A financing for additional rental property purchases or cash-out refinances.
Alt-A loans are not relatively new loan products. Alt-A loans have been around for almost 20 years. However, these loans were niche products that were not made readily available to most borrowers due to the level of risk.
Alt -A Loans - Alt-A loans (Alternative-documentation loans), have been around awhile. In recent years, however, their meaning has become somewhat blurred. Alt-A loans are primarily credit-score driven, since the candidates for these loans tend to lack proof of income from traditional employment. The Alt-A loan reduces the gathering of documentation associated with fully documented loans, such as providing income verification and documentation of assets. On the other hand, borrowers do pay a slightly higher interest rate, often from a quarter, up to half-point more than fully documented loans.
Since all the ALT A product will go through manual underwriting, the processing time by the lender might take longer than regular conventional loan. However, manual underwriting allows more flexible guideline and the lender is looking for a make sense deals.
Investors and Self Employed borrowers are often the likely candidates for this type of mortgage financing.
Alt-A mortgage loans are usually much more flexible that traditional loans. Commissioned employees are usually good candidates for Alt-A loans due to the inconsistency in their income each month. Alt A might even be considered as a short-term solution, entered into with the understanding that the borrower will refinance later. Employees are usually prime candidates for Alt-A loans due to the instability of their income. For Banks and borrowers alike, Alt A programs are appealing because they are easier to document and have fewer restrictions than conventional loans.