Alternative Documentation is expedited and simpler documentation requirements designed to speed up the loan approval process. Instead of verifying employment with the applicants employer and bank deposits with the applicants bank, the lender will accept paycheck stubs, W-2s, and the borrowers original bank statements.Alternative Documentation (Alt Doc) loans differ from Full Documentation (Full Doc) loans in that Alt Doc loan programs do not require the usual income and assets verifications from a third party (the applicant's employer or the depository bank where the loan applicant keeps the down payment funds). Full Doc loans often require such third party verifications and therefore the underwriting process takes longer.
It is now possible to obtain an alternative credit report accredited by the National Credit Reporting Association (NCRA).
Fannie Mae's "My Community" program was designed for first time home buyers with limited credit depth. This program will allow up to 100% financing with little or no credit. You will still have to show at least 4 alternative tradelines but your interest rate is much better than going with a sub prime lender.
The usefulness of this documentation type is obvious; it allows the borrower to speed up the process for underwriting. While you may ask your loan agent for this type of documentation, certain restrictions may apply in order to qualify.
Alternative documentation types can allow borrowers with non traditional sources of income to qualify for loans.
A good example of a borrower who would need to use alternative documentation would be a plumber who works a regular 40 hour per week job but also works after hours and weekends doing "side" jobs. Many such folks earn a significant portion of their overall income this way and would have a difficult time proving this income with traditional methods.
Another option to consider if it is difficult or impossible to verify your income, employment and assets is to No-Doc. A No-Doc loan requires No Documentation of income, employment or assets. You do need a good credit score to go No-Doc and will pay a slightly higher interest rate in some cases but if verification of income, assets and employment is a problem, consider going No-Doc.
Any alternative credit accounts you use must have a good payment history and be open for a minimum of 12 months. Canceled rent checks can also be used for an alternative credit account.
Alt A and Subprime lenders also allow other documentation types such as bank statements, business bank statements, and/or verification of employment to satisfy income documentation requirements. Check with your broker to see what programs will work best for you.
Only in recent years have we as mortgage professionals been able to work with alt doc type loans. In the past you had to put down 20%, provide proof of everything and have great credit to buy a home. Now we have to ability to pick from multiple loans programs that fit just about anyone's profile.
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