Qualified Mortgage (QM)

A Qualified Mortgage (QM) is a home loan that meets standards established by the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act's Ability-to-Repay (ATR) rule. QM status provides lenders with a legal safe harbor — if a borrower defaults and claims the lender didn't verify their ability to repay, a QM loan provides strong protection against liability. QM rules prohibit: (1) negative amortization; (2) interest-only periods; (3) balloon payments (with limited exceptions for small lenders); (4) loan terms longer than 30 years; (5) excessive points and fees (generally above 3% of the loan amount). QM also requires lenders to verify income, assets, employment, debts, and credit history. See CFPB — Ability-to-Repay and QM rule.

The CFPB defines several QM categories: (1) General QM: The primary category — requires income/asset verification, DTI not exceeding 43% (or a pricing-based safe harbor), and compliance with product restrictions; (2) Temporary GSE QM (Patch): Loans eligible for Fannie Mae or Freddie Mac purchase qualified automatically as QM regardless of DTI — this "GSE patch" was effectively phased out in 2021 as the GSEs aligned their eligibility with QM; (3) Small Creditor QM: For smaller lenders that hold loans in portfolio — allow balloon features in rural/underserved areas; (4) Seasoned QM: A non-QM loan that performs well (no defaults) for 36 months earns QM status, encouraging portfolio lending. Most Fannie/Freddie conforming loans qualify as General QM. See CFPB QM FAQ.

A non-QM loan does not meet one or more CFPB QM standards — it may have features QM prohibits (interest-only periods, balloon payments) or it may verify income differently (bank statements instead of tax returns, DSCR instead of personal income). Non-QM lenders take on more regulatory and legal risk. Non-QM products include: bank statement loans for self-employed borrowers, DSCR loans for investors, asset depletion loans, foreign national loans, and jumbo products that exceed fee caps. Non-QM is not inherently predatory — it fills gaps for creditworthy borrowers who don't fit agency guidelines. However, non-QM typically carries higher interest rates (0.5%–2%+) and requires larger down payments. See non-QM loan growth 2027.

No — QM is a regulatory and legal standard, not an affordability guarantee. QM ensures the lender followed a process to verify your ability to repay and that the loan doesn't have certain risky features. It does not mean the loan is affordable for you personally. A borrower can get a QM loan with a 43% DTI and still face financial strain if income changes or expenses rise. QM protects lenders from legal liability for improper underwriting; it protects consumers from the most predatory loan structures (negative amortization, excessive fees). To assess true affordability, use the mortgage calculator with your actual income, debts, and expected expenses including HOA, insurance, and taxes. See CFPB consumer mortgage tools.

QM rules cap points and fees at 3% of the loan amount for loans over $100,000 (graduated caps apply for smaller loans). "Points and fees" under QM includes: loan origination charges, points, lender fees, broker compensation, and certain third-party fees where the lender selects the provider. It excludes bona fide discount points (up to 3 points), title fees, appraisal, credit reports, and escrow amounts. Exceeding the 3% cap disqualifies a loan from QM status, shifting legal risk to the lender. This cap limits the profit lenders can extract through fees and encourages competitive pricing. See CFPB — ATR/QM Final Rule details.

Yes — QM applies to most consumer-purpose closed-end mortgage transactions secured by a dwelling, including refinances and second homes. It does not apply to loans made primarily for business or commercial purposes (so most investment property loans with a business purpose are exempt). DSCR loans and other investment property loans are typically structured to fall outside the ATR/QM framework as commercial purpose loans. This is one reason non-QM lenders often offer rental property loans with flexible qualification criteria — those loans are not subject to QM fee caps or DTI limits. HELOCs (open-end credit) are also exempt from QM. See HELOC definition and Federal Register — QM Definition Update 2021.