Here's who is most affected by the QM rule
The impact of the QM rule falls mostly on borrowers in the following groups:
Affected by the QM rule
- Jumbo borrowers with high debt-to-income ratios.
- Recently divorced parents.
- Self-employed people and business owners.
- Salespeople on commission and people emerging from unemployment.
1. Jumbo borrowers with high debt-to-income ratios.
If you seek a mortgage over the conforming limit and your DTI is higher than 43 percent, you might have to look harder for a lender. You won't be able to get a loan from a jumbo lender that will lend only within the QM criteria.
Find out whether your county's conforming limit is above $417,000.
2. Recently divorced parents.
If you rely on alimony or child support income to qualify for a mortgage, you have to show that you have received this income for at least a year. If you have received it for less than a year, the income cannot be considered.
3. Self-employed people and business owners.
Lenders are required to dig deeper when looking at the incomes of self-employed borrowers, including a closer look at the company's liabilities, capital losses, credit card debt and the balance sheet.
If the paperwork shows that your self-employment income has declined over time, you may have trouble getting approved for a mortgage, Kendall says. "If their income is trending lower, it would be an issue that could prevent approval, even if the income is sufficient," she explains. "Before, you could look at it and assess the situation more subjectively. Now we have to calculate income exactly how the regulation says."
4. Salespeople on commission and people emerging from unemployment.
Borrowers who rely on commissions to qualify for loans must be able to document their commissions for at least a year and ideally for two years. Those who recently returned to the workforce after being unemployed for a period also may struggle to get a loan in the first six months of employment.
Some lenders offer non-QM loans
If you don't qualify for a QM loan, you still might be able to get a mortgage. "It just means a consumer will have to spend more time shopping for an institution," Kendall says.
Before the rule was implemented, many lenders said they wouldn't lend outside the QM box. Now that the rule has been implemented, a growing number of lenders offer non-QM loans.
Bank of the West, for example, offers jumbo loans that allow borrowers to have DTIs as high as 50 percent. It also offers interest-only loans, which fall outside the QM guidelines.
Grabel, of Luxury Mortgage, says his company offers a number of programs for non-QM loans. "Now that banks know what they can expect, I think we will be seeing many more non-QM loans," he adds.
Non-QM loans have strict standards
The non-QM loans may have stricter requirements in areas besides debt to income. They may require high credit scores or limit loan-to-value ratios.
The loan-to-value ratio, also called LTV, is the share of a home’s value that is covered by mortgage debt. Expressed as a percentage.
Formula: Mortgage amount / Home’s market value
Example: Pat buys a $100,000 house and gets an $80,000 mortgage. The loan to value is 80 percent. ($80,000 divided by $100,000)
"Interest-only loans are available, but at reduced loan-to-value," Grabel says.
Allen Beydoun, senior vice president for United Wholesale Mortgage, says his company recently started offering non-QM loans.
"The loans are designed for those clients looking for jumbo loans, clients who are self-employed and have higher DTIs," he says. "But we are talking about clients with strong reserves, a FICO score of 740 plus and loan-to-value of 75 percent."
Savings for a rainy day. Lenders typically require borrowers to have at least two months' worth of house payments set aside as reserves.