The ABC’s of Alternative Lending

Most homebuyers, when it comes to their financing, want the best rate possible. And that usually means turning to either the big banks, credit unions, or monoline lenders. In the mortgage business, these lenders a typically called, “A” lenders. If you’ve got good credit, a good job and decent down payment, you’re probably looking at one of these A lenders. But there are some people who don’t fit into conventional lending, and that’s where you might hear the term, Alt A, or alternative lender. What’s an alternative lender? An alternative lender is a mortgage company backed by investors offering mortgage financing with different guidelines on credit and debt servicing and a focus on the property and exit plan.

Alternative lenders are typically there for people coming out of bankruptcy, with bruised credit, or are self-employed and need to prove some sort of cash flow.

Borrowers will generally need to have a minimum of 20 to 25 percent down, there will be applicable lender and broker fees and rates will be higher than conventional lenders. But the rates may not be as high as you think. Some of these Alt A lenders are offering one-year rates between 4.35 and 5.8 percent. And using an A lender can be a great stepping stone to getting back into a conventional mortgage with the best-discounted rate and no fees.

With the addition of tougher mortgage rules and stress tests, more people are turning to an alternative lender out of necessity.

If someone has enough equity, there’s always a lender who can assist with financing, but it will come with higher rates and fees.

If you find yourself on the outside of conventional lending, a well-qualified mortgage professional can help you navigate the alternative lending space to help you get the best product that fits your needs.