If you are researching new mortgage loans for either a refinance or a new home purchase you may have heard the term “Qualified Mortgage” or “QM” a lot recently, but what does it really mean for you? Let me try to break it down for you. With a strong recommendation from the CFPB, a team of experts, analysts and regulators essentially placed a set of rules and regulations in place which, in my opinion, level the playing field and weed out some of the unscrupulous players that have plagued the mortgage industry for the last decade or more.
Here is the gist:
1. Lenders must analyze and review your ability to repay the loan before we are able to offer you a firm commitment. This is done by reviewing income documents including tax returns, credit reports, assets etc., and by calculating your debt-to-income ratios. The debt-to-income ratios is the amount of money you bring in versus what monthly obligations you have going out each month, including car loans, credit card payments, and of course your new mortgage PITI payments. Your ratio cannot exceed 43%. This has been Perennial’s protocol since we started in this business back in 2006. We didn’t need regulators to tell us what we already knew. The fact is you don’t want to borrow more than you can comfortable payback anyway.
2. Lenders cannot offer you risky features in the loan such as interest only or balloon payments. These programs aren’t very common anyway, and they are designed for very specialized financing needs. In previous companies, I have offered these types of loans, but since starting Perennial Funding 8 years ago we have not originated a single “interest only loan” or one loan that carried a balloon payment option. This adjustment will have zero impact to our customer base, past or present.
3. Origination fees are capped at 3%. With any mortgage loan, there are many different variables that come into play. Advertised rates are typically based off of what those of us in the industry refer to as the “base price”, but there are many adjustments that lenders take into consideration when actually offering the loan commitment. These adjustments include your credit profile, equity in your home, property type etc. Along the same lines, consumers have the option to pay for the adjustments in the form of closing costs or by opting for a slightly higher interest rate. If you plan on staying in your home for a long period of time, it may be in your best interest to pay for the adjustments at closing rather than taking a higher rate over a period of 15, 20, or 30 years. This is the only part of QM that I believe may limit your ability to truly customize your loan to suit your needs, but I can say very few of loans originated by us since we have been in business fell outside of this 3% tolerance.
In summary, QM is nothing to fear. It’s good to know that you are protected by rules that prevent lenders from taking advantage of you, but it’s even more comforting to know that you have a choice to work with a company that has operated well within the newly set boundaries for nearly a decade before the law came into effect. If you have any questions or would like to share your story with me, please feel free to contact me directly at email@example.com or you can call me at 610-233-0098.
If you are purchasing a new home, or you think you may benefit from refinancing your existing mortgage, I will be happy to offer you a free no-obligation consultation. There is no better time than now to begin working on your financial goals!
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