Advantages and limitations of a qualified mortgage

In the world of home loans, borrowers and lenders were introduced to a new term in 2014. Developed and introduced by the Consumer Financial Protection Bureau, the qualified mortgage or more commonly and simply referred to as the QM, was the answer that came as a direct result of the predatory lending that caused the last financial collapse. Created to protect the lender and borrower from risky loan agreements. The QM option is gaining more popularity for the low risk and lower fees that it offers as opposed to other varieties. Although it is accompanied with stipulations and requirements that may be considered stricter than normal, for those who qualify, it has become a great way for people to get that home of their dreams.

Certifications

To qualify for the QM, the lender carefully evaluates the given financial situation of the individual and if necessary, the family, and determines beyond any reasonable doubt that they can afford the proposed loan that they are applying for. This examination doesn’t just examine the borrower’s ability to make the initial payments, but certifies that the applicant can satisfy the terms of the loan within the given duration. This stipulation is called the “ability-to-pay” rule, and is just one of the many fail-safe methods that have been taken to remove potentially risky elements from loan agreements, making them more realistic. Other terms and practices that are absolutely not a part of the QM are, interest only periods, balloon payments, negative amortization, terms that exceed 30 years, fees and points greater than three percent of the mortgage.

Main qualification

When lenders consider potential applicants for a QM, the major area that they use in reaching a decision to grant is if the client is able to present a reasonable debt-to-income ratio. It has been determined that in order to qualify as a suitable candidate for a QM the borrower must display a 43% or less ratio including the total mortgage payment of the loan. Applicants that fall on the higher end of the 43% may not qualify for the QM, they may still have many options for other home loan options. Although there might not be a noticeable difference in the application process, there are individuals and groups that will definitely face more challenges than others. For instance, those seeking a larger sized loan, or commonly referred to as a jumbo loan, the potential borrower’s ratio is usually pushed over the 43% cut-off. Other individuals that may encounter difficulties are those that are self-employed. Because of the needed requirement for physical proof of earnings and not just estimates, those that are self-employed may face a number of problems.

If you’ve been considering a home loan but need some assistance in determining your debt-to-income ratio, or perhaps more information on the requirements and stipulations to qualify for a QM, contact your local mortgage and lending agent to discuss your desires and the options that are available to you.