Alternative Documentation Loans, commonly known as Alt Doc Loans, are a type of mortgage designed for borrowers who may not meet the stringent income verification requirements of traditional loans, such as those backed by Fannie Mae or Freddie Mac. Instead of relying on conventional documentation like W-2 forms, tax returns, and pay stubs, Alt Doc Loans allow borrowers to use alternative forms of income verification. These can include bank statements, profit and loss statements, asset documentation, or other financial records.

What is an Alt Doc Loan?

Alt Doc Loans are called so because they use alternative documentation compared to traditional “full doc” loans, which are the standard for agency loans provided by Fannie Mae and Freddie Mac. In a full documentation (full doc) loan, borrowers must provide extensive financial documentation to verify their income, including tax returns, W-2s, pay stubs, and sometimes even proof of employment. These requirements can be challenging for certain types of borrowers, such as self-employed individuals, small business owners, and real estate investors, who may not have a steady or easily verifiable income.

What is a Non-QM Loan?

Non-QM (Non-Qualified Mortgage) loans are a category of loans that do not conform to the standard criteria set by the Consumer Financial Protection Bureau (CFPB) for Qualified Mortgages (QM). Unlike QM loans, Non-QM loans provide more flexibility in underwriting standards, allowing lenders to use alternative methods to verify a borrower’s ability to repay. This makes them ideal for borrowers with complex financial situations, such as fluctuating income, high debt-to-income ratios, or significant assets but low documented income.

Non-QM Loans vs. Alternative Documentation Loans:

Non-QM (Non-Qualified Mortgage) loans are mortgages that do not meet the standard criteria for Qualified Mortgages set by the Consumer Financial Protection Bureau, offering flexible underwriting standards. Alternative Documentation Loans, a subset of Non-QM loans, specifically use alternative forms of income verification, such as rental income, bank statements, profit and loss statements, taxpayer identification numbers, or asset depletion, instead of traditional documents like tax returns.