On Friday, the federal government’s new “ability-to-repay” and “qualified mortgage” rules take effect, or ATR and QM for short. The ATR rules detail how your lender must document your income, expenses and assets.
The QM rules limit the kind of mortgage your lender can issue you if it wants to sell your loan on the secondary market, as is done with the vast majority of such loans.
The QM rules prohibit features such as low teaser rates that reset upward. A mortgage can’t raise a borrower’s debt-to-income ratio above 43 percent, and points and fees can’t exceed 3 percent of the total loan.
Borrowers may find the additional questions intrusive and the loan process longer. Don’t plan on trying to close on a property in 30 days…expect something more like 45 days or more, especially in the beginning.
Qualified mortgage rules
• “Toxic” features, such as interest-only periods and negative amortization, are prohibited.
• The loan period cannot exceed 30 years.
• Balloon payments are prohibited in most cases.
• In general, consumers’ monthly debt-to-income ratio may not exceed 43 percent.
• Points and fees are limited to 3 percent of the total loan amount for loans of $100,000 and more.
• Lenders receive protections from lawsuits related to qualified mortgages, even if the loans default.