Definition: Alt-A mortgages, short for “Alternative-A” mortgages, are a category of loans that fall between prime and subprime in terms of borrower creditworthiness. These mortgages are typically offered to borrowers who have credit scores or financial documentation that are slightly lower than what is required for prime loans but do not present the high credit risk associated with subprime borrowers.
Key Characteristics:
- Credit score: Borrowers often have good, but not excellent, credit scores.
- Documentation: Alt-A borrowers may lack traditional documentation, such as verified income or employment history, making the loans “low-doc” or “no-doc.”
- Interest rates: Generally higher than prime rates but lower than subprime rates due to the moderate risk profile.
Alt-A mortgages often appeal to self-employed borrowers, those with irregular income, or individuals with minor credit issues. These loans can provide an alternative for those who fall outside the traditional mortgage qualifying criteria but still demonstrate an ability to repay.
Last modified: November 5, 2024