Ever heard of a QM in the home buying process? A QM is a Qualified Mortgage. Find out the qualified mortgage definition in Movement’s ABCs of Mortgages.
What is a QM?
QM stands for Qualified Mortgage, which is a mortgage that meets certain requirements to protect consumers and lenders from unduly, risky mortgages. Having a QM essentially means the lender can help assure the borrower and creditor that the loan can be repaid.
Qualified mortgage definition
To promote responsible mortgage lending, the government put controls in place requiring lenders to consider consumers’ ability to afford a loan. This also encourages lenders to offer less risky loans. The QM and Ability-To-Repay (ATR) rules are two of those controls. The ATR rule requires lenders to make a reasonable, good-faith determination that a consumer has a reasonable ability to repay the loan. In making that determination, some of the things that are looked at are:
- your DTI (debt-to-income)
- your employment and credit history
- and the expected monthly payments for the loans.
QMs are mortgages that are subject to the ATR rule, don’t contain certain risky features and allow a presumption that the ATR rule was followed.
The overall concept of the QM/ATR review is to make sure that a borrower has the ability to repay the loan that we offer. In general, it helps ensure that a lender is not engaging in predatory lending, and that the product a consumer ends up with actually fits their financial profile. Basically, offering QM loans means Movement puts people in loans they want and can afford.
Types of qualified mortgages
Qualified mortgages are normally broken down into four types, depending on the lender’s attributes. Though the only thing you’ll probably care about knowing is all QM types have to abide by the requirements of:
- No negative amortization or interest-only payments
- No terms longer than 30 years
- Limited points and fees
Note: Some loan products that are excluded from the ATR rule. This means the loan type would not have to go through a review for QM.
Non-QM loan requirements
While less common, a non-QM loan includes one or more of the defined “risky features.” This includes negative amortization, high points and fees and balloon payments. These loans are still subject to the ATR rule requirements, however.
Awesome! What do I do from here?
Your best resource will be a local loan officer. If you have concerns about your debt, ability to repay, or whether you’d qualify for a QM, they’ll be able to look over your scenario and help give you further information. If your debt-to-income needs help, they can also give you resources and direction to improve your situation. Know that you have options. And there are good rules in place to help make sure you get a home loan you can afford.