Jan
1
What is Alternative Documentation
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Editors Note: Due to the mortgage and credit crunch, Alternative Documentation loans are no longer be available. If you’re in need of a refinancing your mortgage in Denver, CO contact us to discuss your mortgage options.
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 subprime 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.
Jan
1
Reasons for loan denial
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If your mortgage has been denied, there are many reasons why. Here are some of the most common reasons.
You could be denied because of residency status. While some lenders will not lend to you if you are not a US citizen, there are other lenders who will. Also if you are unable to produce sufficient documentation for your income and have lower credit scores you might be denied without the possibility of a stated income program.
Your loan could be denied if you did not provide accurate information during the initial loan application. Underwriters verify nearly all information so you may as well provide accurate info up front!
Sometimes applications have been denied because the loan officer did not ask for the proper information or submitted too much information (ex Submitting a W-2 on a stated income deal). If your mortgage application has been denied please call and we may have a program for you.
A mortgage application can be denied if the property being bought is not acceptable on the secondary market. For instance, a condominium or cooperative project that is not Fannie Mae eligible, or a house that, based on the survey, has a part of a structure built on a neighbor’s land. While no banks would lend on a property with title or survey issues, some lenders thrive on making mortgage financing available to condos and coops that are non-conforming.
Your loan could be denied if you have not been in the same line of work over the past two years. Your loan could also be denied if you have huge gaps when switching jobs.
Your mortgage can be denied for many credit reasons. Your credit score may not fit the guidelines of the program that you are trying to qualify for. You may have too much derogatory credit listed on your credit report or you may have open collection accounts that you are unable to pay and the lender requires them to be paid to obtain the loan you are looking for. Lack of credit tradelines or lack of a credit history are other big credit reasons as to why people are denied a loan. Credit tradelines are open credit accounts reporting on your credit report. If you do not have enough open active tradelines a underwriter may not have enough information to make a decision on whether you are credit worthy of obtaining a loan from them.
Your loan can be denied because income is not sufficient to support the monthly payments according to the lender guidelines.
Loans are sometimes denied because of things that happen after the application is taken. Some of the more common are:
- termination of employment, such as quitting a job to find one closer to the new home, or getting fired for missing too much work while planning the big move to the new home
- increased debt, such as buying things on credit to go in or with the new home, like furniture or a new car, or spending that anticipated refinance money a little early
- late payments, because the borrowers assumes they can make the payment after their refinance closes or the refinance will pay it off.
Lenders are required to send you a form stating the reason for your loan denial.
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