The Dodd-Frank Wall Street Reform and Consumer Protection Act, which became federal law on July 21, 2010 used the term āqualified mortgageā (QM) first. You need to envision the QM loan like a funnel were everything needs to filter though and this funnel was given certain government guide lines it needs to meet. Some of this information came from the Qualified Mortgage website and I encourage every buyer to read up on the information.
The type of loan that comes out of the bottom of the funnel is a Qualified Mortgage (QM) that meets certain government standards:
- Borrowers Debt-To-Income (DTI) ratios are not to be HIGHER than 43% based on monthly gross income.
- Loan terms cannot be longer than 30 years.
- Borrowers lending points and fees cannot exceed 3% of the total amount borrowed.
- Cannot be a negative amortization loan.
- Cannot be an interest only loan.
- Cannot have a balloon payment.
Now that you and your mortgage have passed the federal QM rules, you now you need to be able to pass your lenders rules before they lend you the money. This is where I found some borrowers are confused.
Some of their rules might include:
- Acceptable credit rating
- Acceptable time on the job
- Proof of income
- Proof of expenses
It is also possible that the borrowers Debt-To-Income (DTI) ratio is LESS than the 43% required by the Feds but at the same time the lender may be using a DTI as little as 35%. This would cause you to not get approved for the loan. Yes, many lenders now use tighter rules than the federal QM guidelines to assure they will not have to foreclose on borrowers because they cannot pay for their mortgage.
When you have further questions feel free to contact us. We are not mortgage advisers but we have connections with some great advisers we seek for advice when we have questions ourselves.