While endless variety exists in the types of alternative
mortgages becoming available to consumers, they all fall into one of four
categories:
Jumbo loans--Fannie Mae and Freddie Mac, government groups
who purchase securities on mortgages, set a conforming loan limit each year. In
2005, that limit is $359,650. Applicants who want to borrow more than that
amount need to seek a jumbo mortgage, with interest rates that are higher than conforming
loan rates, but are typically the least expensive nonconforming loans.
Stated-income loans--People are self-employed or whose
income comes from tips won't be able to prove their wages with W-2s or tax
returns. Stated income mortgages allow them to prove their employment (or
self-employment), debts, and assets, but don't require proof of income.
No-ratio loans--People who live off of their assets or who
are undergoing major changes such as divorce or career changes may want to
consider no-ratio mortgages. People who have incredibly complex financial lives,
such as the entrepreneur who own six or seven different businesses, may also
find this type of loan to be more convenient than completing all of the
necessary paperwork for a traditional mortgage. Applicants seeking no-ratio
loans have to show assets, but don't have to prove their income or their debts,
and income to debt ratios are not computed.
No-doc loans--No documentation loans don't require the
applicant to prove anything, except that they have an excellent credit score
and a worthy property. No-doc mortgages are the most expensive loans, and are
best for consumers who don't want to disclose anything about their financial
lives. Shady businessmen and starlets are perfect candidates.