Qualified Mortgage (QM)
What is a Qualified Mortgage?
A category of mortgages meeting Consumer Financial Protection Bureau standards — the conventional regulatory baseline.
The Qualified Mortgage (QM) rule was created by the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act in the wake of the 2008 financial crisis. It defines a category of mortgages designed to be sustainable for borrowers and presumed to comply with the Ability-to-Repay (ATR) rule, which requires lenders to verify a borrower’s ability to repay a mortgage before originating it.
Key QM characteristics:
- DTI ≤ 43% (under the older general definition; the newer Price-Based QM uses a different threshold tied to APOR)
- No negative amortization
- No interest-only periods exceeding loan term
- No balloon payments (with limited exceptions for small creditors)
- Points and fees capped (typically 3% of loan amount or less)
- Loan term capped at 30 years
- Safe harbor — lenders making QM loans receive legal protection against ATR-related borrower lawsuits
Most conventional Fannie Mae / Freddie Mac loans, FHA loans, VA loans, and USDA loans are QM-compliant. Non-QM loans — a smaller but growing segment — fall outside these standards by design.
How QM applies at Total Quality Lending
Total Quality Lending’s programs are non-QM by design. That doesn’t mean unregulated — non-QM lenders still must comply with the Ability-to-Repay rule. We just verify ability to repay using methods QM doesn’t prescribe:
- DSCR loans — the property’s rental cash flow is the repayment source. DTI is not calculated because the borrower’s personal income isn’t the basis
- Prime Time bank statement / 1099 / P&L paths — the borrower’s actual gross business cash flow, not their tax-return net (which is reduced by depreciation and other paper-only deductions)
- Asset utilization — documented liquid assets calculated as projected income
For a real estate investor or self-employed borrower, non-QM produces a more accurate picture of repayment ability than the QM-prescribed DTI calculation. See Non-QM for the full non-QM definition.