Alt-A Loans

The term Alt-A refers to a loan which is issued to a borrower with less than the ideal characteristics.  Alt-A loans have more risk than prime conforming loans which are purchased by Freddie Mac/Fannie Mae but are less risky than sub-prime loans which are issued to the riskiest borrowers.  Alt-A loans will have higher interest rates than your typical A-paper loans due to the added risk profile of the borrower.  The added risk could come in the form of a higher debt to income ratio, high loan to value ratio, or even a credit rating which is less than excellent.  Most Alt-A borrowers have a credit score which is high enough to consider them a candidate for a conforming loan; however, the other factors we mentioned above are typically deficient, creating a less than ideal borrowing profile.

Alt-A loans have lower documentation requirements and do not need to verify the borrowers income.  This is prevalent in borrowers who have employment in industries which have heavy compensation in the form of tips or even those who work "under the table".  Many times, Alt-A borrowers do not have enough W2 income or personal assets, meaning that the bank will need to use it's judgement in issuing these loans on a case by case basis.
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