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Understanding the ‘Qualified Mortgage’ or QM and Why It’s Important to New Home Buyers

July 1, 2014 by Scott Moize Jr.

Understanding the 'Qualified Mortgage' or QM and Why It's Important to New Home BuyersAre you shopping for a home or a new mortgage? If you are interested in finding the best possible financial product, it is important to consider the benefits of selecting a Qualified Mortgage. With so many different types of loan products to choose from and financial terms to learn, schooling yourself on the mortgage market before you buy your first home or apply for your first refinance mortgage may seem like a daunting task.

Luckily, there are resources that are designed to help you learn the basics of products and terms so that all consumers have the power to inform themselves before securing a loan.

What is a Qualified Mortgage?

There are many different categories of home loans that individual loan products can fall into and one of these categories is simply referred to as a Qualified Mortgage. Qualified Mortgages, also referred to as the QM in the industry, is a product that has been approved as a qualified product because it has stable features that benefit you as a borrower.

All lenders who are interested in offering a Qualified Mortgage must make a good-faith effort to assess your income and your debt-to-income ratio to ensure that you are able to repay the loan before you take the loan out. All lenders must meet a long list of certain requirements that are free of harmful features that could affect a borrower’s ability to pay.

Common Requirements of Qualified Mortgages

The main purpose of a qualified mortgage is to protect borrowers from forms of predatory lending. The standards that the loan must meet are set by the Federal government. In addition to assessing the borrower’s ability to pay before approving an application, lenders must meet loan product requirements that are very specific in nature. Some of the harmful features that a QM product is not permitted to have include:

– Negative Amortization: This feature affects consumers by allowing principal to increase over time.

– Interest-only Periods: Where payments are only applied to interest on the money borrowed.

– Balloon payment requirement: A requirement where borrowers must pay a large payment at the end of the loan term.

– Long Terms: Loans cannot have terms longer than 30 years.

– A Large Debt-to-Income Ratio: There is a limit in how much income that can go to monthly debt payments. This limit is 43% for a QM.


How Can a QM Benefit a New Home Buyer?

As you can see, there are safeguards built into a Qualified Mortgage that are designed to protect you from entering into a long-term binding loan contract that puts you in an unfair position. There are also legal protections that are designed to protect lenders who are committed to designing qualified mortgage products. You can sign a loan that you can afford to repay, have payments applied to your principal as well as interest, and become a homeowner without unnecessary stress. If you are interested in learning more, contact your mortgage professional to review interest rates and loan terms.

Filed Under: Home Mortgage Tips Tagged With: Mortgage Loan Information, Mortgages, Qualified Mortgage

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Consumer Compliant & Recovery Fund Notice

CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.
THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.

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