Qualified Mortgage (QM)

Updated 2026-05-18

A Qualified Mortgage (QM) is a home loan that meets product, points-and-fees, and underwriting standards set by the CFPB under the Truth in Lending Act and Regulation Z (12 CFR § 1026.43(e)). QMs give creditors legal protections against challenges to Ability-to-Repay compliance: a safe harbor when the loan is not higher-priced, and a rebuttable presumption when it is. The rule limits high-risk features such as most balloon, interest-only, and negative-amortization structures and caps points and fees.

General QM Criteria (as revised)

Under the general definition for QMs, a creditor must satisfy specific criteria [12 CFR § 1026.43(e)(2)]:

• Product Features: Generally, QMs cannot have Balloon Payments, interest-only payments, or negative amortization. The loan term cannot exceed 30 years.
• Points and Fees: The loan's Points and Fees (QM) must not exceed specified thresholds, which vary based on the loan amount.
• Underwriting Requirements: Creditors must consider and verify the Eight Underwriting Factors (ATR) consistent with the general ATR standard, including income, assets, and debt obligations.
• Debt-to-Income (DTI) Ratio (Historical Context): Historically, a consumer's total DTI was limited to 43% calculated in accordance with Appendix Q. However, in 2021, the CFPB eliminated direct references to Appendix Q and replaced the 43% DTI limit with requirements based on mortgage pricing (APR relative to Average Prime Offer Rate (APOR)) [12 CFR § 1026.43(e)(2)(vi)]. Creditors still must consider and verify DTI or residual income for ATR purposes.

Types of QM Protections

The legal protection a creditor receives for originating a QM depends on whether the loan is a "higher-priced covered transaction" [12 CFR § 1026.43(e)(1)]:

1. Safe Harbor (Conclusive Presumption of Compliance):

   • Applies to QM loans that are not Higher Priced Mortgage Loans (i.e., the Annual Percentage Rate (APR) does not exceed the Average Prime Offer Rate (APOR) plus 1.5 percentage points for first-lien loans or 3.5 percentage points for subordinate-lien loans) [12 CFR § 1026.43(e)(1)(i)].
   • A loan with Safe Harbor status is conclusively presumed to comply with the ATR requirements, meaning a borrower cannot successfully challenge the creditor's ATR determination.
   • Seasoned Qualified Mortgage (Seasoned QM)s also receive a conclusive presumption of compliance, regardless of whether they were higher-priced.

2. Rebuttable Presumption of Compliance:

   • Applies to QM loans that are Higher Priced Mortgage Loans (i.e., the Annual Percentage Rate (APR) exceeds Average Prime Offer Rate (APOR) plus 1.5 percentage points for first-lien loans or 3.5 percentage points for subordinate-lien loans) [12 CFR § 1026.43(e)(1)(ii)].
   • For a rebuttable presumption general QM, the difference between APR and APOR for first-lien mortgages may exceed 1.5 percentage points, but is limited to 2.25 percentage points under the revised final rule.
   • With a Rebuttable Presumption (QM), the loan is presumed to comply with ATR, but the Consumer can challenge this presumption by providing evidence that the creditor did not make a reasonable and good faith determination of their ability to repay.

Other Categories of Qualified Mortgages

In addition to the general QM definition, other categories have been established:

• Agency QMS: Mortgages eligible to be insured or guaranteed by Federal Housing Administration (FHA), Department of Veterans Affairs (VA), United States Department of Agriculture (USDA), and Rural Housing Service (RHS) loans. These agencies have their own QM rules.
• Small Creditor (QMS): Provide more flexible standards for certain loans originated by small creditors, particularly those held in portfolio.
• Temporary Balloon Payment (QMS): Applicable for certain balloon loans made and held in portfolio by small creditors.
• Seasoned Qualified Mortgage (Seasoned QM)s: A new category for first-lien, Fixed-Rate Mortgages that have met certain performance standards after being held in the originating lender's portfolio for at least 36 months.
• GSE Patch (Expired) (Expired): A temporary category for loans eligible for purchase by Fannie Mae or Freddie Mac, which expired in July 2021.

What MLOs must know for the SAFE exam

• General QMs generally cannot have balloon payments, interest-only payments, or negative amortization, and the term cannot exceed 30 years.
• Points and fees must stay within loan-amount-based thresholds; creditors must still consider and verify ATR underwriting factors, including income, assets, and debts.
• The historical 43% DTI / Appendix Q approach was replaced by price-based criteria (APR relative to APOR); creditors still consider DTI or residual income for ATR.
• Safe harbor applies when a QM is not higher-priced (APR within the stated APOR spreads for first- or subordinate-lien loans); higher-priced QMs get only a rebuttable presumption.
• Other QM categories include agency QMs, small-creditor QMs, temporary balloon QMs for certain small creditors, and seasoned QMs; the GSE patch expired in July 2021.