What is a Qualified Mortgage?

Short answer

A is a loan type that avoids certain high-risk features and is treated as satisfying the separate rule. Government-backed FHA, USDA, and VA loans are treated as qualified; other loans must meet extra requirements. Qualified Mortgage status is not a promise you will be approved, and not every ability-to-repay-compliant loan is a Qualified Mortgage.

Full explanation

The CFPB describes a Qualified Mortgage as a home loan with fewer risky features and added protections that make it more likely you can afford the payments. Before originating the loan, the lender has to try in good faith to confirm you can repay it. That duty is the ability-to-repay rule. If the loan is a Qualified Mortgage, the Bureau says it is assumed the lender followed that rule. Following the ability-to-repay rule does not, by itself, make every loan a Qualified Mortgage.

Loans guaranteed or insured by HUD or the Federal Housing Administration, the U.S. Department of Agriculture, or the Department of Veterans Affairs are treated as qualified. Conventional loans, including those backed by Fannie Mae or Freddie Mac, and jumbo loans must meet additional requirements. Those generally bar interest-only periods, negative amortization, balloon payments (with limited exceptions for some small lenders), and terms longer than 30 years.

Qualified Mortgages also carry limits on the loan's price, measured by annual percentage rate, and on certain upfront points and fees. Those limits depend on the type or size of the loan, and not every charge counts toward the points-and-fees cap. If points and fees exceed the applicable threshold, the loan cannot be a Qualified Mortgage. The lender must consider and verify current monthly income or assets, other than the property securing the loan, and monthly debts, including debt-to-income or residual income.

A Qualified Mortgage is a product standard, not a credit decision. Meeting it does not mean an application will be approved.

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