The Qualified Mortgage (QM) rule under Dodd-Frank prohibits loans with:
Correct Answer
B) Negative amortization or interest-only payments
A Qualified Mortgage may not carry the features most associated with the defaults of the last housing crisis: negative amortization, interest-only periods, balloon payments (with a narrow exception for small creditors lending in rural or underserved areas), terms longer than 30 years, or points and fees above the applicable cap. The lender must still verify income, assets and debts and consider the borrower's ability to repay, but the General QM definition no longer imposes a 43% debt-to-income ceiling. Since October 1, 2022 General QM status turns instead on a price test: the loan's annual percentage rate may not exceed the average prime offer rate by more than the spread set for its lien position and size. Fixed rates, thirty-year terms and small down payments are all fully compatible with QM status.
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Related Concepts
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
More Financing Questions
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