Alt-A - Borrower Considerations

Borrower Considerations

An example of a person requesting a Stated Income mortgage is an individual with multiple and varying sources of income that would require an onerous amount of paperwork to document, such as income from self-employment or investments. Note that reduced documentation loans still require that borrowers authorize the lender to order their tax returns at random from the Internal Revenue Service in order to verify the income on the application.

The same documentation features are available under "subprime" guidelines, and similar ones may even be available under agency guidelines. Alt-A and subprime differ in that, generally speaking, an Alt-A borrower would have had a sufficient financial profile to qualify for a "conforming" mortgage, if only it weren't for one of the factors mentioned above, whereas a subprime borrower would suffer from exceptionally weak credit, income or asset characteristics. However, in cases where borrower, property and loan characteristics meet agency guidelines especially well, Fannie's and Freddie's automated preapproval systems generally grant reduced documentation features automatically at no extra cost. More expensive Alt-A or subprime loans are not necessary for strong borrowers to expedite their applications.

Aside from reduced documentation features, Alt-A guidelines usually also offer borrowers greater flexibility than agency guidelines concerning borrower credit scores, income and asset levels. Thus a borrower whose financial profile might not meet agency guidelines for the loan terms requested might still be eligible under Alt-A guidelines.