Generally speaking, a loan “qualifies” if:
(1) Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100K, higher percentage thresholds are allowed).
(2) There are no risky features like negative amortization, interest-only, or balloon loans.
(3) The maximum loan term is less than or equal to 30 years,
(4) The borrower debt-to-income ratio is 43% or less. Any loan that is eligible for purchase, guarantee or insurance by a GSE (Fannie Mae or Freddie Mac), VA, USDA or FHA is QM regardless of the debt-to-income ratio.
Most borrowers can meet their needs with one of these typical “qualifying” loans. Programs like Conventional, FHA, VA, and USDA do a good job of qualifying borrowers with a range of incomes, credit scores, and down payments.