What Dodd-Frank Means: Harder to Qualify for Fewer Loan Products


January 10, 2014




Qualified Mortgage (QM) goes into effect on January 14th.  It comes from the Dodd-Frank legislation.

  • Mortgage loans must be Qualified Mortgage loans with safe harbor.  Not every loan has to be a QM loan, but lenders will want them to be because if done properly, they shield the lender from legal liability.  Fannie Mae, Freddie Mac, FHA, VA, USDA are all QM.
  • The back end cannot be above 43% of gross income
  • Points and fees cannot exceed 3%
  • The ability of buyer to repay must be determined by 8 check points
  1. Current or reasonably expected income or assets
  2. Current employment status
  3. The monthly payment on the covered transaction
  4. The monthly payment on any simultaneous loans
  5. The monthly payment of mortgage related obligations
  6. Current debt obligations, alimony, child support
  7. The monthly debt to income ratio or residual income
  8. Credit history
  • ARM’s have to qualify at the fully indexed rate, or the introductory rate, whichever is higher.
  • Essentially, there will be no balloon, interest only, negative amortization or payment terms exceeding 30 years.
  • There cannot be pre-payment penalties.
  • No-doc loans cannot be QM.

To sum it up:  it will be harder to qualify for fewer loan products. It’s still well worth your time to visit a few banks and see what you can pre-qualify for, as it’s hugely helpful during the sales process. For more information or to speak to an experienced real estate agent, please visit our website.

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