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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 CFPB's revised General QM definition, which replaced the 43% DTI cap with a price-based standard, became mandatory on March 1, 2021 under 12 CFR 1026.43(e)(2). The Temporary GSE QM category expired on October 1, 2022, making the price-based standard the sole General QM pathway.: Under the CFPB's revised General QM rule, a first-lien loan qualifies as a Qualified Mortgage if its APR does not exceed the average prime offer rate by more than 2.25 percentage points (12 CFR 1026.43(e)(2)(vi)).
  • Points and fees on Qualified Mortgages are capped at 3% of the total loan amount for loans at or above the annually adjusted threshold, which the CFPB revises each January based on the Consumer Price Index (12 CFR 1026.43(e)(3)).
  • 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 (12 CFR 1026.43(e)(4)), which granted QM status to loans eligible for purchase or guarantee by the GSEs or federal agencies regardless of DTI ratio, expired on October 1, 2022, concurrent with mandatory compliance for the CFPB's revised General QM definition.
  • 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 Total points and fees may not exceed 3% of the loan amount for most transactions, with higher percentage caps applying to smaller loans as specified in the CFPB's QM rule (12 CFR 1026.43(e)(3)). 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 The difference between a loan's annual percentage rate and the average prime offer rate for a comparable transaction. QM status depends on staying within specified spread limits, with higher-priced loans receiving a rebuttable presumption rather than safe harbor protection. ≤1.5% (first-lien) for safe harbor; 1.5%-2.25% triggers rebuttable presumption
Points and Fees Cap Total points and fees charged to the borrower as a percentage of the loan amount. Exceeding the statutory cap disqualifies a loan from QM status entirely, regardless of other favorable characteristics. ≤3% of loan amount for loans ≥$100K; higher caps for smaller loans
Prohibited Product Features Certain product features automatically disqualify a loan from QM status. These include negative amortization, interest-only payments, balloon payments (with limited exceptions), and terms exceeding 30 years. Binary pass/fail; any prohibited feature disqualifies the entire loan
Safe Harbor vs. Rebuttable Presumption Threshold The legal protection level a lender receives under QM. Safe harbor provides a strong legal shield against ability-to-repay challenges, while rebuttable presumption allows borrowers to challenge compliance by proving they could not reasonably repay. Safe harbor for APR ≤1.5% over APOR; rebuttable presumption for 1.5%-2.25%

Examples

Safe Harbor QM with a Conforming Rate

Scenario: A borrower applies for a 30-year fixed-rate conventional loan at 6.75% when the APOR for a comparable transaction is 6.10%. The loan has total points and fees of 1.8% on a $320,000 balance. The lender verifies income, assets, and debts, and the DTI is 38%.
Outcome: Because the APR is only 0.65 percentage points above APOR (well under the 1.5-point threshold for first liens), the loan qualifies for safe-harbor QM status. The lender receives a strong legal presumption that it satisfied the ability-to-repay requirement.

Rebuttable Presumption QM Near the Price Threshold

Scenario: A borrower with a thin credit file obtains a $280,000 first-lien mortgage at 8.25% when the APOR is 6.10%. Total points and fees equal 2.5% of the loan amount. The loan has no negative amortization, no interest-only period, and a 30-year term.
Outcome: The APR exceeds APOR by 2.15 percentage points, above the 1.5-point safe-harbor cutoff. The loan still meets all QM product-feature requirements, so it qualifies as a rebuttable-presumption QM. The borrower could theoretically challenge the lender by showing the loan was unaffordable at consummation.

Non-QM Due to an Interest-Only Feature

Scenario: A self-employed borrower requests a $500,000 loan with a 10-year interest-only period followed by 20 years of fully amortizing payments. The lender underwrites using bank statements rather than tax returns.
Outcome: The interest-only payment structure is a prohibited product feature under the QM rule. Regardless of the ability to repay, the loan cannot receive QM designation. The lender must hold the loan in portfolio or sell it as a non-QM product without safe-harbor or rebuttable-presumption protection.

Points-and-Fees Cap Violation on a Smaller Loan

Scenario: A borrower takes out a $90,000 first-lien mortgage. The lender charges 2 origination points, the borrower pays $1,200 in mortgage-insurance premiums that count toward the cap, and miscellaneous QM-countable fees total $800. The combined points and fees reach $4,400, or roughly 4.9% of the loan amount.
Outcome: For loans in this size range, the applicable points-and-fees cap is approximately $3,472 (adjusted annually). At $4,400 the loan exceeds that cap and fails the QM test even though all product features comply. The lender would need to reduce fees or absorb the excess to preserve QM status.

Agency QM Through FHA Endorsement

Scenario: A first-time buyer with a 640 credit score finances a $250,000 home with an FHA-insured 30-year fixed loan. The DTI is 48%, which exceeds the general QM 43% guideline but falls within FHA automated underwriting approval limits.
Outcome: Because the loan is insured by FHA, it qualifies under the agency (government) QM category. Agency QMs are not subject to the 43% DTI threshold that applies to the general QM definition. The loan receives QM safe-harbor protection as long as FHA endorses the insurance certificate.

Common Mistakes to Avoid

  • Assuming all conventional loans are automatically Qualified Mortgages

    A conventional loan can fail QM requirements if it includes prohibited features like interest-only payments or a balloon, or if points and fees exceed the applicable cap. QM status depends on specific product-feature and pricing tests, not simply on whether the loan is conventional or government-backed.

  • Confusing the QM points-and-fees cap with total closing costs

    The QM points-and-fees calculation includes only specific items such as origination charges, certain mortgage-insurance premiums, and compensation paid to loan originators. Standard third-party costs like appraisals, title insurance, and recording fees are generally excluded. Borrowers who compare the QM cap to their total closing-cost figure will overestimate the regulatory threshold.

  • Believing a non-QM loan is illegal or predatory by definition

    Non-QM simply means the loan does not qualify for the legal protections built into the QM framework. Lenders can still originate non-QM loans as long as they make a good-faith determination that the borrower can repay. Many non-QM products serve creditworthy borrowers whose income documentation or loan structure falls outside QM parameters.

  • Overlooking the difference between safe-harbor and rebuttable-presumption QM

    A safe-harbor QM provides a conclusive presumption of compliance with the ability-to-repay rule, making successful legal challenges extremely unlikely. A rebuttable-presumption QM still offers protection, but the borrower can attempt to prove the lender did not reasonably verify affordability. Borrowers with higher-priced QM loans should understand that their legal standing differs from borrowers in the safe-harbor tier.

  • Ignoring annual adjustments to QM dollar thresholds

    The CFPB adjusts QM-related dollar thresholds each year, including the points-and-fees caps for smaller loans and the loan-amount tiers that determine which cap applies. A loan that cleared the cap in one calendar year may fail the test in the next if thresholds shift. Lenders and borrowers should confirm the current-year figures before relying on prior calculations.

  • Thinking a high DTI ratio alone disqualifies a loan from QM status

    Under the revised General QM rule (effective 2021), the CFPB replaced the 43% DTI hard cap with a price-based approach. A loan can qualify as a General QM at any DTI as long as its APR does not exceed APOR by more than the applicable threshold and all other product-feature requirements are met. The old 43% limit now applies only to a narrow subset of QM categories.

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?
The CFPB's price-based General QM standard became mandatory on March 1, 2021, replacing the original 43% DTI threshold (12 CFR 1026.43(e)(2)). The Temporary GSE QM category, which had provided a separate QM pathway based on GSE automated underwriting approval, expired on 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. The Temporary GSE QM category, commonly known as the GSE Patch, was effective from January 10, 2014 through October 1, 2022, when it expired and was replaced by the CFPB's revised price-based General QM definition under Regulation Z. 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 at or above the CFPB's annually adjusted threshold, total points and fees may not exceed 3% of the total loan amount, as specified in Regulation Z (12 CFR 1026.43(e)(3)). 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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