What is a QM and how does it affect a borrower?

According to the Consumer Financial Protection Bureau, 92% of all current mortgages meet the QM requirements. What does this mean? Borrowers who get a Qualified Mortgage (QM) are presumed to meet the ability-to-pay rule. The ability-to-pay rule is what mortgage lenders use to make sure borrowers can actually afford their loans, over the long term, by weighing their income, assets, savings, and debt against their monthly house payments. But what are the QM’s tighter guidelines? According to Julie Schmit’s “Mortgage rules aim to halt risky loans,” a qualified mortgage cannot: 

·         “Contain risky features, such as terms that exceed 30 years, interest-only payments or payments that are less than the full amount of interest so that the home loan debt grows each month.

·         Carry more than 3% in upfront points and fees for loans above $100,000.

·         Push a borrower's total debt load above 43% of his or her monthly income, unless the loan is eligible to be backed by Fannie Mae or Freddie Mac, or a federal housing agency such as the FHA, or is made by a small lender that keeps the loan on its books.” 

With this in mind, are lenders still willing to make non QM loans? Yes and some even think non QM loans are a good idea. However, with a QM loan, there is an added risk of less protection for the lender should borrowers fail in the future even though the lenders had to make sure borrowers could afford the loan.