What’s an Alt-A loan?

An Alt-A loan, also called an alternative documentation loan, is a loan that holds borrowers with good credit to different approval standards than traditional loans. Those applying for an Alt-A loan need not provide income verification or documentation of assets. Instead, the approval for an Alt-A loan is based primarily on an individual’s credit score. People who are great candidates for Alt-A loans include the recently divorced, entrepreneurs, the self-employed, and those who are paid on commission.

Alt-A loans are typically subject to manual underwriting, which may make the process take as long, if not longer, than securing a traditional loan. However, one of the benefits of manual underwriting is the increased flexibility provided to the borrower. Another point about Alt-A loans is that their interest rates are usually slightly higher than traditionally documented loan. This amount is usually less than one percentage point higher than a conventionally documented loan. That being said, many individuals applying for an Alt-A may not qualify for conventional loans because of their unique situations.

There are a number of subtle variations among different Alt-A loans, making it important for borrowers to get all the facts before making any commitments.