What is a Qualified Mortgage?
Buying a home is one of the biggest financial moves you’ll ever make, and if you’re like most people, you’re probably planning on using a mortgage to pay for it.
But like a roommate, a mortgage is something you’ll have to live with every day, so choose wisely!
The best—and safest—choice, is what the Consumer Protection Act calls a Qualified Mortgage.
- It must be for 30 years or less.
- It can’t offer “interest only” payment periods in which your payments only go toward the interest and not the principal.
- It can’t use “negative amortization” in which your loan principal is actually increasing even though you’re making payments.
- It also avoids “balloon” payments in which large lump sums are due at scheduled points during the loan period.
- The first is your monthly income, which includes your employment status and any assets you own. The second is any debt you may owe, including the cost of the mortgage. These two numbers give us your Debt-to-Income ratio, or DTI. A good target is 43% or less.
- Your credit history also plays a role in determining what kind of interest rate you qualify for.
With these numbers in hand, we’ll figure out your Ability to Repay, and hopefully get you into that dream home as soon as possible.