 TITLE: What’s a Qualified Mortgage? CONTENT: Requirements for a Qualified Mortgage\n-------------------------------------\nAs spelled out by the CFPB, QMs must meet four requirements:\n1.  **Ability-to-repay rule.** The lender must make a good faith effort to ensure borrowers can make monthly mortgage payments by documenting income, assets, employment, credit history and monthly expenses. This rule excludes mortgages with low initial interest rates (known as teaser rates) that rise dramatically at the end of an introductory period.\n2.  **Restrictions on risky loans.** Certain other types of mortgage loans that can put borrowers at risk are also excluded from QM status, including:\n*   Loans that include reduced interest-only payments for a portion of the repayment period, during which the borrower accumulates no equity in the property.\n*   Negative-amortization loans, under which the principal owed on the loan increases over the course of the repayment term.\n*   Loans that call for a large final payment (often called a balloon payment) at the end of the repayment term.\n*   Mortgages with repayment terms longer than 30 years.\n4.  **Income-based restrictions.** Lenders issuing QMs must ascertain that monthly payments on the loan do not cause household debt-to-income (DTI) ratio to exceed 43%. DTI is calculated by dividing total monthly debt payments (including those on credit cards, auto loans, student loans and other forms of credit, as well as the mortgage loan) by the borrower's monthly pretax income. This measure aims to prevent borrowers from accepting mortgage loans that hurt their ability to cover their monthly debts.\n5.  **Limits on points and fees.** A QM for $100,000 or more cannot require points (upfront payments characterized as percentage points of the total loan amount) or other fees that exceed 3% of the loan amount. Fees can be proportionally larger on smaller loans, as specified below:\nTotal Loan Amount\nMaximum Points & Fees\n$100,000 or more\n3% of the total loan amount\n$60,000 to $99,999.99\n$3,000\n$20,000 to $59,999.99\n5% of the total loan amount\n$12,500 to $19,999.99\n$1,000\nLess than $12,500\n8% of the total loan amount\n**Source**: **Consumer Financial Protection Bureau**\nFederal Housing Administration (FHA) insurance premiums and certain other types of fees are not included in point and fee limits. END