Niche and Other Programs
As with ARM loans Niche loans and other loan product options have a plethora of options. This can make you dizzy with options. Because of this we are only going to cover the most often used products and options that are available to you. The products that will be covered in this section are Alt-A loans, Pay Option Arm loans.
Alt-A or Stated loan products:
These are loans that have one or more of the following features, limited income verification, stated income verification limited or stated asset verification, or no income and/or asset verification. These loans are for you if you have a hard time to verifying your income or assets. Typically, you generally have to have good credit for these loans; however there are some sub-prime loans with these features.
These loans all have just what they state: some form of limited verification of income or assets. You state your income and your assets and the only verification generally done is to call the employer to make sure you are working at the company and that it is a legitimate company with a yellow pages listing. If you are self-employed you will have to show the lender a copy of your employment license (if Applicable). Assets are stated and you must have enough to pay your down payment and closing cost at closing.
These loans go by the following numerous self-explaining acronyms:
- SISA - Stated Income Stated Assets
- SIVA - Stated Income Verified Assets
- NINA - No Income No Asset (verification)
- NIVA - No Income Verified Assets
These loan products may also use limited verification of income or assets by using a percentage of your business or checking account deposits for the previous year.
General Rules:
- The more you verify the lower you interest rate. A stated loan will have a lower rate than a no income verification loan; likewise with stated assets being lower than no asset verification.
- These loans come in 2/28 and 3/27 ARM loans as well as fixed rate terms. Some new five year ARM loans are now hitting the market with these features.
- Most Alt-A loans can have a pre-payment penalty, which means that if you pay it off before the prepayment term, generally 1-3 years, you will pay a specified fee for paying the loan off early. You can buy this out when you get the loan.
- Today in many states it is becoming illegal to use stated or no income loans, because the government wants you to verify your income information to make sure you can afford the loan being sought.
Pay Option ARM loans:
This is an ARM loan that generally has a relatively high fully amortizing interest rate, but has four payment option features for you to choose from each month. You will receive a new invoice each month giving you four payment options. These options are (1) a low payment rate of between 1% - 3.99%, (2) an interest only payment option, (3) a 15 year amortization payment term option, and (4) a 30 year amortization payment term option. These terms options can vary, but these are used most of the time.
The first payment option, which most people choose since it is the lowest payment available, has a negative amortization feature. This means that instead of your loan balance going down, it goes up. Here is an example: Mr. Rogers has a pay option ARM loan with a 1% minimum payment. His 30 year feature is at 7.00%. Over the year Mr. Rogers only pays that minimum payment. His balance next year will increase by slightly over 6%, so if his balance was $200,000 at the beginning it will now exceed $212,000 the next year.
General Rules:
This loan is for sophisticate high end borrowers only or for people who have very seasonal income, where these different payment types might help. Unfortunately, this program has been used with a stated income feature (SISA or SIVA loans) to get unqualified buyers to buy homes that they can not afford. This also led to having too many buyers driving up home prices to non-realistic levels. BEWARE and make sure that you can afford an amortized payment on this program before choosing it.
MCA offers a product to protect you against potential mortgage fraud and over-charging. It is called the Consumer Protection Plan. A Mortgage Professional will review your initial mortgage disclosure documentation and when the loan is ready to close the MCA professional will also review your closing settlement documents to make sure you received the correct program, rate and fees as initially disclosed.
