What Real Estate Agents Need to Know About the Qualified Mortgage Rules!

The Consumer Finance Protection Bureau has created a Qualified Mortgage Rule (QM) which goes hand-in-hand with Ability-to-Repay rules (ATR).

In a nutshell, here’s a simplified explanation of what QM is all about and how it will affect you and your borrowers when applying for a mortgage loan starting January 10, 2014.

The Mandatory Product Features for all Qualified Mortgages (QMs) are as follows:

  • Points and fees are not supposed to exceed 3% of the loan amount based on the following:
    • The 3% limit is for loans that are $100,000 or higher
    • $3,000 for a loan amount between $60,000 and $99,999
    • 5 percent of the total loan amount between $20,000 and $59,999
    • $1,000 for a loan amount between $12,500 and $19,999
    • 8 percent of the total loan amount for loans less than $12,500
  • No risky features are allowed, such as negative amortization, interest-only, or balloon loans
  • Maximum loan term must be 30 years or less.

The three main categories of a QM loan are as follows:

  1. General Definition of QM Loans – any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less
  2. Types of QM loans – FHA, VA, Conventional (Fannie & Freddie) and USDA
  3. Small Creditor Category of QM loans – If a mortgage company, small community bank or credit union that has less than $2 billion in assets originates 500 or fewer first mortgages per year AND holds the loan in their portfolio, the 43% does not apply, but they must still verify the borrower’s ability to repay the loan.

What does this mean to you and your clients?

  • Underwriting will be more strict
  • More documentation will be required
  • Pre-approvals become MORE important than ever before
  • Re-verification of income, credit and assets will be required before closing

Some lenders will be offering Non-Qualifying Mortgage loans, but you can be assured that the lender will make sure that all Ability-To-Repay requirements are met. An example of a Non-QM loan would be a Jumbo Mortgage with Interest Only payments.

What would you like to know about Qualified Mortgages or the Ability-to-Repay rules?

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