Definition
Qualified Mortgages meet strict Dodd-Frank standards including ability-to-repay verification, reasonable terms, and origination fee limits. QM loans give lenders legal safe harbor. Most conventional mortgages today are QM loans.
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The Qualified Mortgage standard was created by the Dodd-Frank Act to reduce predatory lending. QM loans must include ability-to-repay verification (demonstrated income, credit, etc.), not exceed specific debt-to-income ratios or terms, and maintain origination fees below 3% (generally). Lenders have legal presumption that QM loans comply with the ability-to-repay rule. Non-QM loans (outside these guidelines) require additional scrutiny. Most conventional mortgages today are QM loans because QM status reduces lender liability.
Pro Tip
QM loans offer lender certainty and generally lower rates; non-QM loans are for borrowers outside standard criteria (self-employed, non-traditional income).
Example
A standard 30-year fixed mortgage with documented income, DTI under 43%, and origination fees of 2% is a Qualified Mortgage meeting regulatory requirements.