A Qualified Mortgage (QM) is a loan that meets specific standards set by the Consumer Financial Protection Bureau (CFPB). These standards include verifying the borrower's ability to repay, prohibiting negative amortization, limiting the loan term to 30 years, and capping fees.
Most conventional, FHA, VA, and USDA loans are QMs. The QM designation provides legal protections for both the lender and the borrower.
Understanding whether your loan is a QM helps you know what consumer protections apply and what alternatives exist if you do not fit standard guidelines.
What QM Means
A QM loan requires the lender to verify your income, assets, debts, and employment. The loan must not have negative amortization, interest-only periods, or balloon payments. Points and fees are capped at 3% of the loan amount for loans over $100,000. The loan term cannot exceed 30 years.
Requirements for QM Status
The lender must document and verify the borrower's ability to repay using the debt-to-income ratio and residual income analysis. The DTI cannot exceed 43% for general QM loans. The loan must be fully amortizing with regular payments that pay off the principal over the loan term.
Benefits of a QM Loan
Borrowers get strong consumer protections. Lenders are presumed to have complied with the ability-to-repay rule. The standardized structure makes QM loans easier to compare across lenders. Most importantly, you can be confident that the loan is sustainable for your financial situation.
Non-QM Alternatives
Non-QM loans offer flexibility for borrowers who do not fit standard guidelines. These include bank statement loans for self-employed borrowers, asset depletion loans, and loans for foreign nationals. Non-QM loans generally have higher interest rates and may require larger down payments.
How to Know If Your Loan Is QM
Your Loan Estimate will not explicitly say QM or non-QM, but the loan type gives you a strong indication. Conventional loans sold to Fannie Mae or Freddie Mac are QM. FHA, VA, and USDA loans are also QM. If your loan has a balloon payment or interest-only period, it is likely non-QM.