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An "A" Paper or Prime Loan - What is it and Would You Qualify?

Last Updated: May 25, 2011

Please Note: We are not a bank nor do we give out loans. Each bank has its own set of rules to decide whether or not to give a person a loan. The criteria given below is meant to be used as a guideline only.

An "A" paper loan is another term for a prime loan. This type of loan is for a person with a credit score of 680 or higher, can fully documents his/her income and assets, their debt to income ratio does not exceed 35%, has two months of mortgage payments in reserves after closing, and can injects at least 20% equity into the transaction.

"A" Credit	This means: You have not been late on a mortgage or rent payment in the last two years. You have not been late on a car payment in the last two years. You have not been more than 30 days late on a credit card payment more than twice in the last two years. You have had no collections (other than a small medical collection) or any judgments in the last two years. Your credit score is good to excellent, perhaps 680 or better. An A Paper borrower normally must have at least two months mortgage payments in "liquid reserves". This can be in a checking, savings, investment, or even retirement accounts at any financial institution. See more details on deciding if you have "A" credit.
Sufficient Income	This means: Your total mortgage payments per month are equal to 29% or less of your gross monthly income (your pay before taxes are taken out). Your total payments per month (not including insurance, utilities, food) are equal to or less than 36-41% of your gross monthly income. You must be able to prove your income. Examples: tax returns, bank statements, pay stubs. In order to count your full income, you must have been employed in the same line for work for the last two years. See our mortgage pre-qualifying calculators to see what you can afford for a payment.
Stability	Although credit and income are the biggest two deciding factors on whether or not to give someone a loan, stability plays a part. Good stability means: You have been in the same line of work and/or job for 2 or more years. You have lived in the same house or apartment for more than 2 years.
Down Payment	You cannot buy a house without making a down payment. Typically you need to have saved up an amount equal to 3.5% of the price of the home (at the minimum-- and this is for an FHA loan) to qualify. Some loan programs even allow the down payment and/or closing costs to be paid for through a monetary gift from a relative, such as the FHA program.

The decision whether or not to give you a loan is not dependent on any one of the above factors alone, but on all three. For instance, if you have excellent credit, but no verifiable income, no one will give you an "A" type loan on a new home (and perhaps no loan period, in today's market). You may still be able to get a loan with less than "A" credit, but the application process will be harder and the interest rate (and points) will probably be higher. More at Brokers vs. Bankers.