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Qualified Mortgage (QM) Rules Explained

A Qualified Mortgage (QM) is a residential mortgage loan that meets product-feature requirements and underwriting standards established by the CFPB under the Dodd-Frank Act's Ability-to-Repay rule. QM loans prohibit negative amortization, interest-only payments, terms over 30 years, and balloon payments, and they must satisfy points-and-fees caps and either a price-based or agency-specific qualification standard. QM status provides lenders with legal protections ranging from rebuttable presumption to safe harbor against ability-to-repay challenges.

Key Takeaways

  • QM status is a regulatory classification under Dodd-Frank that provides lenders legal protection against borrower lawsuits challenging the ability-to-repay determination.
  • QM loans prohibit negative amortization, interest-only payments, balloon payments, and loan terms exceeding 30 years.
  • The revised General QM rule (effective October 2022) replaced the 43% DTI cap with a price-based approach: the loan's APR must not exceed APOR by more than 2.25 percentage points for most first-lien loans.
  • Points and fees on QM loans are capped at 3% of the loan amount for loans of $110,260 or more, with adjusted thresholds for smaller loans.
  • Safe harbor protection applies to QM loans priced within 1.5 percentage points of APOR; higher-priced QM loans receive rebuttable presumption of compliance.
  • The temporary GSE Patch, which granted QM status to any GSE-eligible loan regardless of DTI, expired on October 1, 2022.
  • Non-QM loans remain legal but do not receive QM legal protections and are generally ineligible for purchase by Fannie Mae or Freddie Mac.
  • Lenders must still verify income, debts, and DTI under the revised General QM rule, but there is no prescriptive DTI ceiling.

How It Works

How a Loan Is Evaluated for QM Status

When a lender originates a residential mortgage, the loan is evaluated against the QM criteria at the time of consummation. First, the lender confirms the loan does not contain any prohibited features: no negative amortization, no interest-only payments, no balloon payments, and no term exceeding 30 years. Second, the lender calculates total points and fees and verifies they do not exceed the applicable cap (3% for most loans). Third, the lender determines whether the loan meets the General QM pricing test by comparing the loan’s APR to the APOR for a comparable transaction on the date the interest rate is set.

If all three tests are satisfied, the loan is a General QM. The lender then determines whether the loan receives safe harbor or rebuttable presumption by comparing the APR-to-APOR spread against the 1.5 percentage point threshold. Loans meeting all QM criteria and priced within the safe harbor threshold are documented as safe harbor QM loans. Loans exceeding the safe harbor threshold but within the General QM pricing limits are documented as rebuttable presumption QM loans.

How the Price-Based QM Test Works in Practice

The APOR is published weekly by the CFPB based on survey data of mortgage rates. The lender identifies the APOR for a transaction with the same term and product type (fixed-rate or adjustable-rate) as of the date the loan’s interest rate is set (the rate lock date). The lender then calculates the loan’s APR, which includes the interest rate, points, mortgage insurance premiums, and certain other finance charges as defined by Regulation Z. If the APR exceeds the APOR by more than the applicable threshold (2.25 percentage points for most first-lien loans), the loan does not qualify as a General QM.

For example, if the APOR for a 30-year fixed-rate loan is 6.00% on the rate lock date, a loan with an APR of 8.20% (spread of 2.20 percentage points) qualifies as a General QM. A loan with an APR of 8.30% (spread of 2.30 percentage points) does not. The threshold is precise and leaves no margin for rounding. Lenders typically build compliance buffers into their pricing to ensure QM eligibility .

How Points and Fees Are Calculated

The points and fees calculation requires the lender to aggregate specific charges and compare the total to the applicable threshold. Included charges are: all compensation paid to the lender or mortgage broker from any source (origination fees, processing fees, underwriting fees if retained by the creditor), any charges payable at or before closing that would otherwise be excluded from the finance charge but are charged to the consumer, real estate agent commissions or similar charges paid by the consumer, the total prepaid finance charge including prepaid interest over 30 days, and certain mortgage insurance premiums payable at or before closing. Excluded charges include bona fide third-party charges not retained by the creditor (such as appraisal, title insurance, credit report, recording fees), bona fide discount points (up to two points on a fixed-rate loan if the rate reduction is reasonably consistent with established practices), and per-diem interest charges.

The lender must track these components carefully, particularly in broker-originated transactions where broker compensation from both the borrower and the lender must be aggregated. Exceeding the points and fees cap disqualifies the loan from QM status, regardless of whether all other QM criteria are met.

Related topics include trid: tila-respa integrated disclosure rules, respa explained: real estate settlement procedures act, role of fannie mae and freddie mac in mortgage lending, ability-to-repay (atr) rule, and mortgage regulations: a borrower’s guide.

Key Factors

Factors relevant to Qualified Mortgage (QM) Rules Explained
Factor Description Typical Range
APR-to-APOR Spread
Points and Fees Cap
Prohibited Product Features
Safe Harbor vs. Rebuttable Presumption Threshold

Examples

Scenario: Conforming 30-year fixed-rate loan evaluated for General QM status
Outcome: The loan qualifies as a General QM because the APR-to-APOR spread (0.60%) is below the 2.25% threshold, total points and fees (1.94%) are below the 3% cap, and no prohibited product features are present. The spread is also below 1.5 percentage points, so the loan receives safe harbor protection. The 45% DTI does not disqualify the loan because the revised General QM rule has no DTI ceiling.

Scenario: Higher-priced loan receiving rebuttable presumption rather than safe harbor
Outcome: The loan qualifies as a General QM because the 1.80% spread is below the 2.25% threshold and points and fees are under 3%. However, the spread exceeds the 1.5 percentage point safe harbor threshold, so the loan receives rebuttable presumption of compliance rather than safe harbor. The lender has legal protection, but it is not conclusive and a borrower could potentially challenge the ability-to-repay determination.

Scenario: Loan disqualified from QM due to points and fees exceeding the cap
Outcome: Even though the applicable cap for a loan of this size is higher than 3% (due to the small loan adjustments), the total points and fees exceed the applicable threshold for loans between $66,156 and $110,260 . The loan does not qualify as a QM. The lender may still originate the loan under the general ATR rule, but it will not receive QM legal protections and will be classified as a non-QM loan.

Scenario: Self-employed borrower using bank statements who cannot obtain a QM loan
Outcome: Bank statement loan programs use alternative documentation that does not conform to QM underwriting standards. The loan is originated as a non-QM product. The lender does not receive QM legal protections but satisfies the general ATR requirement by documenting the bank statement income analysis. The interest rate is higher than a comparable QM loan to compensate for the additional legal and credit risk.

Common Mistakes to Avoid

  • Assuming QM status means the loan is the best available option for the borrower
  • Believing the 43% DTI cap still applies to General QM loans
  • Confusing QM product prohibitions with all available mortgage products
  • Not understanding how points and fees are aggregated, particularly in broker transactions
  • Assuming all government-backed loans (FHA, VA, USDA) are automatically QM
  • Ignoring the difference between safe harbor and rebuttable presumption when evaluating loan pricing

Documents You May Need

  • Loan Estimate (LE) showing APR, interest rate, and itemized closing costs for points and fees calculation
  • Closing Disclosure (CD) confirming final APR and total points and fees
  • APOR table for the applicable rate lock date (published weekly by the CFPB)
  • Income documentation (pay stubs, W-2s, tax returns) used by the lender for ability-to-repay determination
  • Credit report used for underwriting showing all recurring debt obligations
  • Broker compensation disclosure (if applicable) showing lender-paid and borrower-paid compensation
  • Automated underwriting system findings (DU or LPA) confirming loan eligibility
  • Loan program product description confirming no prohibited features (no interest-only, no negative amortization, no balloon, term 30 years or less)

Frequently Asked Questions

What is a Qualified Mortgage?
A Qualified Mortgage is a residential mortgage loan that meets specific requirements under the CFPB's Ability-to-Repay/Qualified Mortgage Rule. QM loans must avoid prohibited features (negative amortization, interest-only payments, balloon payments, terms over 30 years), comply with points and fees caps (3% for most loans), and satisfy the General QM pricing test (APR no more than 2.25 percentage points above APOR for most first-lien loans). QM status provides the lender with legal protections against ability-to-repay challenges.
Is there still a 43% DTI limit for Qualified Mortgages?
No. The original 43% DTI cap under the General QM rule was replaced by a price-based approach effective October 1, 2022. Under the revised rule, there is no specific DTI ceiling. Lenders must still verify and consider the borrower's DTI as part of the ability-to-repay analysis, but the QM determination is based on the loan's APR relative to APOR, not on a DTI threshold.
What is the difference between safe harbor and rebuttable presumption?
Both are forms of legal protection for lenders who originate QM loans. Safe harbor applies to QM loans priced within 1.5 percentage points of APOR and provides conclusive protection; borrowers effectively cannot challenge the ability-to-repay determination. Rebuttable presumption applies to higher-priced QM loans and creates a presumption of compliance that a borrower can overcome by proving the lender did not make a reasonable ability-to-repay determination at the time of origination.
Can I still get a mortgage if my loan does not qualify as a QM?
Yes. Non-QM loans are legal and available from lenders who choose to originate them. Non-QM lenders must still comply with the general Ability-to-Repay rule by making a good-faith determination that you can repay the loan. Non-QM products typically carry higher interest rates than comparable QM loans because lenders do not receive the legal protections that QM status provides and because non-QM loans have more limited secondary market liquidity.
What happened to the GSE Patch?
The GSE Patch (Temporary GSE QM) was a temporary QM category that granted QM status to any loan eligible for purchase by Fannie Mae, Freddie Mac, or a federal agency, regardless of DTI. It existed from January 2014 through October 1, 2022, when it expired and was replaced by the revised General QM rule. The price-based General QM was designed to absorb most of the loan volume that had relied on the GSE Patch.
What are the points and fees limits for QM loans?
For loans of $110,260 or more, total points and fees may not exceed 3% of the loan amount. For smaller loans, higher percentage thresholds or flat dollar amounts apply to accommodate fixed origination costs. Points and fees include origination charges, broker compensation from any source, and certain mortgage insurance premiums paid at or before closing. Bona fide third-party charges (appraisal, title, recording) are excluded if not retained by the creditor .
Are FHA and VA loans Qualified Mortgages?
FHA and VA loans have their own QM categories defined by their respective agencies. FHA Qualified Mortgages are defined by HUD and must comply with FHA underwriting requirements. VA Qualified Mortgages are defined by the Department of Veterans Affairs. These agency QM categories are separate from the General QM rule and have their own criteria. Most FHA and VA loans that meet their respective agency guidelines qualify as QM under the applicable agency QM definition.
Why would a borrower choose a non-QM loan?
Borrowers may choose non-QM loans because they need features prohibited under QM (such as interest-only payments), they use alternative income documentation (bank statements instead of tax returns), they are purchasing investment properties using DSCR-based qualification, or their loan pricing exceeds the QM APOR thresholds. Non-QM loans fill gaps in the market for borrowers with legitimate ability to repay who cannot fit within QM's standardized framework.
Does QM status affect my interest rate?
Not directly. QM status itself does not determine the interest rate. However, the QM pricing thresholds create an upper boundary on the APR that a QM loan can carry. Lenders generally prefer to originate QM loans because of the legal protections, which means the most competitive rates are typically available on QM-eligible products. Loans that exceed QM thresholds are priced as non-QM, which generally carries a rate premium.
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