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Best Alternative Mortgage Programs

Best Alternative Mortgage Programs

    In an ideal scenario you qualify for a standard mortgage program from a traditional lender because these programs typically offer borrowers the best loan terms such as a lower mortgage rate and closing costs. Not all applicants, however, can qualify for a traditional mortgage and these programs may not be a good match for your personal or financial situation.

    There are a number of situations that may prevent you from qualifying for a standard mortgage. For example, you may have a ding on your credit report such as a bankruptcy, foreclosure or short sale. Some borrowers may not be able or want to provide documents such as tax returns, bank account statements and pay stubs required when you apply for a mortgage with a traditional lender. Or you may be self-employed, have significant fluctuations in your income or may not be able to verify your income or assets. Perhaps you have significant assets but minimal monthly income. These are all borrower situations that usually disqualify you from using traditional mortgage programs such as conventional, FHA, VA or USDA loans.

    Additionally, the circumstances that keep someone from qualifying for a standard mortgage may not be related to the borrower but rather other factors. For example, you may want to buy a home and flip it so you need a fix & flip loan, which traditional lenders do not provide. Or you may need a short term bridge loan to buy a home before yours sells. You may be trying to purchase a unique property that is challenging to finance. Some borrowers may want a second mortgage to enable them to buy a bigger home but may have difficulty qualifying.

    In short, there are a wide range or reasons related to borrowers, their mortgage requirements and the properties they are financing that can make it impossible to qualify for a traditional mortgage. These factors, however, do not mean that you cannot qualify for all mortgages.

    There are a wide range of alternative mortgage programs that are targeted at borrowers with unique or unconventional circumstances. If a traditional lender rejects your loan application, these programs may be the right financing option for you.

    The FREEandCLEAR Lender Directory enables you to search by lender type for twenty-five loan programs including several alternative mortgage options.


  • As outlined in the table below, alternative mortgage programs are available for self-employed borrowers, borrowers who prefer not to provide financial documents and borrowers with challenging credit profiles. Depending on your situation and objectives, these programs may enable you to qualify for a mortgage even if you have been rejected by other lenders.

    The main difference between alternative and traditional mortgage programs is that alternative programs usually offer more flexible qualification requirements in one specific area. For example, you can qualify for a mortgage with a recent bankruptcy or you can qualify even if you cannot provide your tax returns. Some alternative mortgage programs allow a higher borrower debt-to-income ratio or higher loan amount.

    The flip side of this is that alternative mortgage programs typically apply stricter qualification requirements to other parts of your application. For example, you can qualify for a loan with a low credit score but you need to make a down payment of 30% - 40% as compared to a down payment of 20% or lower required for standard mortgage programs. So while qualification guidelines are flexible in one area they are usually stricter in other areas.

    The other significant difference between standard and alternative mortgages is that alternative programs usually charge a significantly higher mortgage rate and fees. Plus, non-traditional lenders have greater flexibility in pricing so you see a wider variation in rates and closing costs across different lenders. Just like with a traditional mortgage, borrowers should review proposals from at least four lenders to find the mortgage with the best terms.

  • Great Mortgage IdeaAlternative mortgage programs almost always charge a higher mortgage rate and closing costs than traditional mortgages so review your loan terms carefully
  • Additionally, these programs may impose additional charges such as prepayment penalties that you usually do not find with traditional mortgages. Borrowers need to ask if the higher costs and additional loan provisions are worth it.

    It is important to highlight that using an alternative mortgage program may be a temporary financing solutions.  For example, you may use a bridge loan or hard money loan to purchase a home but then refinance into a traditional mortgage with a lower rate and fees when your credit or financial profile improves.

    The table below summarizes alternative mortgage programs. Because you have a wide range of options, you should be sure to understand how each program works to find the one that best meets your needs. Click on the program title to learn more about each program including qualification requirements.

  • Alternative Mortgage Programs
  • Alt-A Mortgage
    • An alt-a mortgage is a term used in the lending industry to describe a category of mortgages that fall in between prime mortgages and subprime mortgages
    • Alt-a mortgages have more flexible qualification requirements than traditional mortgages
    Asset Depletion Mortgage
    • Asset depletion mortgages enable borrowers to use liquid assets to qualify for a mortgage
    • Asset depletion mortgages are good for borrowers with relatively minimal income but significant liquid assets
    • Applicants are not required to sell their assets to qualify for an asset depletion mortgage
    Bank Statement Mortgage
    • With a bank statement mortgage the borrower provides monthly bank statements instead of their tax returns, W-2s or pay stubs to verify their monthly income
    • Bank statement mortgages are usually used by self-employed borrowers
    • You may need to provide business bank statements in addition to your personal statements
    Bridge Loan
    • A bridge loan is a short term loan used to purchase a property
    • A bridge loan is typically refinanced or paid off when the property is sold, prior to the end of the loan term
    • Borrowers may use a bridge loan to buy a new home before their home sells or to purchase a fix & flip property
    Hard Money Mortgage
    • Also known as a private money lender, a hard money lender lends money to people who cannot get a mortgage from traditional lenders such as banks, mortgage banks, mortgage brokers or credit unions
    • Hard money lenders charge higher mortgage rates and fees than traditional lenders but may approve you when traditional lenders won't
    No Documentation Mortgage
    • With a no documentation mortgage, or no doc loan, borrowers are not required to submit any personal financial documents to verify their income, assets or employment
    • No documentation mortgages are typically used by self-employed borrowers or borrowers who primary source of income is from assets or investments
    • Borrower who are concerned about revealing their financial information may also use a no documentation mortgage
    Second Mortgage
    • A second mortgage, also known as a second trust deed, is a second mortgage on a property that uses the existing equity in the property as collateral for the loan
    • The second mortgage is subordinate, or junior, to the first mortgage on the property
    • You can use a second mortgage to buy a home or to take equity of your home without refinancing your existing mortgage
    Stated Income Mortgage
    • A stated income mortgage does not require borrowers to provide personal financial documents such as tax returns and pay stubs to verify their income
    • For some stated income mortgage programs, lenders pull your tax return information from the IRS
  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 13, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry


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