United States
Hong KongQualified and non-qualified mortgages
A qualified mortgage meets defined product and underwriting limits and gives the creditor a presumption of compliance with the ability-to-repay rule. Non-QM lending is lawful and simply carries no such presumption.
A distinction about legal protection for the lender rather than about whether a loan is good or bad.
What makes a mortgage qualified
- Points and fees capped at 3 percent of the total loan amount on a loan of 100,000 dollars or more
- No negative amortization, no interest-only period, no balloon payment in most cases
- A term not exceeding 30 years
- Income and assets verified
What it buys the creditor
A presumption that ability to repay was properly assessed. A qualified mortgage that is not higher-priced gets a safe harbor, which is conclusive. It moved. Know both. Not the same thing.
A higher-priced qualified mortgage gets a rebuttable presumption instead, which a borrower may challenge by showing insufficient residual income.
The two are frequently conflated. A non-QM loan is one outside the definition - a self-employed borrower documented on bank statements, an interest-only product, a term beyond 30 years. The ability-to-repay duty still applies in full.
The 43 percent figure
A 43 percent debt-to-income limit defined the General QM until a price-based standard replaced it in 2021.
Plenty of prep material still presents it as current. Know the figure, because it is asked, and know that it moved.
What is excluded from the rule entirely
Open-end credit, timeshares, reverse mortgages, temporary bridge loans of twelve months or less, and construction phases of twelve months or less.
Reverse mortgages are the exclusion most often tested, because the repayment logic runs backwards.
Common questions
What is a qualified mortgage?
A loan meeting defined product and underwriting limits, which gives the creditor a presumption of compliance with ability to repay.
Is non-QM lending allowed?
Yes. It simply carries no presumption of compliance, and the ability-to-repay duty applies in full.
Is non-QM the same as subprime?
No. Non-QM covers legitimate products outside the definition, such as bank-statement documentation for a self-employed borrower.
What is the points and fees cap?
3 percent of the total loan amount for a loan of 100,000 dollars or more.
Is the 43 percent DTI limit current?
Not for the General QM. A price-based standard replaced it in 2021.