(1.) A method of documenting a loan file by using information such as pay-stubs, W-2 forms etc. As opposed to waiting for tax returns or third party confirmations from banks and employers.  Confirming a borrower's information in this manner is considerably quicker than the traditional method of verifying such information with third parties.

(2.) A "full-doc" loan. In other words, income, assets, employment, etc, are documented as opposed to a "stated income stated asset" (SISA) loan. There is generally no increase in the interest rate associated with alternative documentation as there typically is with "stated" loans.

(3.) No part of your income can be stated or “assumed.” It must be proven.

Bankapedia's Take

Alternative Documentation loans or Alt Doc loans, which become some what standard in the have to get it done and get it done now mortgage boom. The other side of the Alt Doc coin is mortgage fraud. 3rd party confirmations was a safety net for Banks, and taking that away led the way for mortgage shops to spend more money on white out and photoshop than marketing. It became standard practice in the mortgage world to falsify documents - whether it be altering someones w-2's, adding an extra zero to banks statements, or even falsifying employment. Banks were far too eager to please investors and Alt doc is just one of the many things that eventually caught up with them.