Alt A Mortgages

Alt A Mortgages

An Alt-A loan is nor really a loan type. Alt-A is a a way lenders have of grading or categorizing a loan. For many lenders, Alt-A would be synonymous with A-minus. The definition of an Alt-A loan is somewhat fuzzy, however. A-minus has traditionally been used to designate borrowers whose credit scores are somewhat below those of A grade borrowers, typically under 680 (credit scores range between 300 and 850). The traditional definition of Alt-A has been loans that have less than full documentation, also referred to as low doc/no doc loans.

The two definitions have morphed together somewhat. Alt-A has also come to mean loans with other "transgressions" such as not meeting standard underwriting guidelines for property type, debt ratio or loan-to-value ratio, as well as documentation requirements.

What does all of the mean to the borrower? It is important for the borrower to understand that they and the loan they are applying for has a grade. The best place to be is A. A means the the borrower's credit score is very good and the deal is straight forward without anything out of the ordinary. A loans get the most advantageous interest rates and terms.

The next best place for a borrower to be is in the Alt-A/A-minus category. This means that the borrower's credit score is not quite where it should be, or they are not fully documenting their application, or there is something a little out of the ordinary with the deal. Borrowers in this category will pay slightly higher interest rates and have somewhat more stringent qualification criteria. While these borrowers will get somewhat less than the "best deal", they will fare far better than individuals in the sub-prime categories (typically credit scores of less than 580).

Please note that every lenders criteria for Alt-A/A-Minus may be vary. Credit score requirements will be the most common area of variance. It tends to boil down to the risk tolerance of the lender.