The New Qualified Mortgage!

The Definition could kill your next home purchase.

If you are in the market for a new home, one of the many mortgage acronyms you will

Be hearing in the next few months is QM or QRM. In some market it is being descrembed as a

Major hurdle for anyone and possibly a prohibitive policy for anyone looking to buying a home.

 In other word. It is being descrembed as just another new mortgage rule that everyone will have to

Answer to starting early next year.

Now the truth lies somewhere in between.  Of the acronyms, the definition of QM is more important to the home buyer than QRM. A Qualified Mortgage (QM) is part of the ability to repay rule established by the Consumer Finance Protection Bureau (CFPB).

You might be saying, �Well, yes, people should have the ability to repay a mortgage that they get,� and �Isn�t that what got us into this mess to begin with?�  The ability to repay certainly makes sense and, in theory, all lenders and homebuyer's should keep this in mind.

Now there are a few characteristics that make a mortgage a (QM), but the biggest detail in (QM) has to do with the (DTI) debt �to-income ratio. This calculation, in its simplest terms, is how much debt you can carry broken down into minimum monthly payments, including a new home, divided by your pre-tax-income. The new (QM) definition says that to be considered a (QM) this ratio has to be 43 percent or less. At face value, this also sounds pretty reasonable. For example, before taxes, a home buyer's should be able to be at or better  than 43 percent debt to income ratio (DTIR), as we all know things like taxes, gas, utilities, child care and that unused membership card, do add up to a healthy percentage and are not counted in the DTIR of pretax income.

So to eliminate any confusion new home buyer's should seek out getting pre approved for their mortgage early.

The important note is that this new rule is strictly referring to loans that do not make it through Fannie, Freddie, USDA, FHA or VA. If a loan is approved through the Government Sponsored Enterprises (GSE) online approval engines, then regardless of DTI, it is considered a QM loan (assuming it meets the other QM rules as well).  So what happens if the loan does not meet QM requirements? That is where TAD45 come in and make it work for BUYERS AS WELL as Banks. Certainly there will be a market for loans that fall out of this box. Lenders and investors will realize that there are loans that are good lending decisions but do not quit fit into the QM definition.

By: Dan Humphrey

I will see you at the top!