What are Qualified Mortgage (QM) Loans?
Qualified mortgage (QM) loans were created to provide as much protection to consumers as possible. A QM Loan meets all the consumer protection requirements of the Dodd-Frank Act, a law enacted in 2010 after the market crash in 2008. These loans tend to follow the new traditional guidelines where borrowers must meet reasonable debt-to-income ratios (DTI), must have certain credit requirements and lenders can't offer mortgage loans with start low introductory monthly payments that sharply increase when the introductory period ends to prevent default. Also these loans prevent lenders from charging excessive fees at closing. These types of loans are also known as conforming loans and they tend to provide lower interest rates but banks must follow stricter guidelines enforced by Fannie Mae & Freddie Mac.
Are Qualified Mortgage (QM) Loans better?
As a rule of thumb if you have good credit and income that can be verified with tax returns then you will usually qualify for a lower rate through one of the conforming loan options. Banks will typically require a lower down payment as well when you can meet all the loan guidelines. So getting a QM loan can save you a lot of money. On the other end many do not qualify for QM loans and one should not stop shopping for homes when they get rejected by banks. Working with a broker equipped with specialty loan programs as well can help you get a real estate property.