January 10, 2014
DO YOU UNDERSTAND QM (QUALIFIED MORTGAGE) AND HOW IT WILL IMPACT YOU?
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
- Current or reasonably expected income or assets
- Current employment status
- The monthly payment on the covered transaction
- The monthly payment on any simultaneous loans
- The monthly payment of mortgage related obligations
- Current debt obligations, alimony, child support
- The monthly debt to income ratio or residual income
- 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.