What is a qualified mortgage under federal lending rules? Answer in under 100 words. Cite only eCFR (www.ecfr.gov) sources.
Details / How it works
Under 12 CFR 1026.43(e)(2), a qualified mortgage is a covered transaction (a consumer credit transaction secured by a dwelling, per 12 CFR 1026.43(b)(1)) that meets the general definition. It must provide regular periodic payments that are substantially equal, except for the effect of any interest rate change after consummation in the case of an adjustable-rate or step-rate mortgage, and the payments must not result in an increase of the principal balance, allow deferral of principal (except as provided in 12 CFR 1026.43(f)), or result in a balloon payment as defined in 12 CFR 1026.18(s)(5)(i) (except as provided in 12 CFR 1026.43(f)). The loan term may not exceed 30 years, and total points and fees payable in connection with the loan must not exceed the amounts specified in 12 CFR 1026.43(e)(3). The creditor must underwrite the loan using the maximum interest rate that may apply during the first five years after the first regular periodic payment due date, with periodic payments of principal and interest calculated to repay either the outstanding principal balance over the remaining term at the date of adjustment, or the loan amount over the loan term.
Numbers & thresholds
| Element | Requirement |
|---|---|
| Loan term | Not more than 30 years (12 CFR 1026.43(e)(2)(ii)) |
| Points and fees | Must not exceed limits in 12 CFR 1026.43(e)(3) |
| Underwriting rate | Maximum interest rate during first 5 years after first periodic payment due date (12 CFR 1026.43(e)(2)(iv)(A)) |
| Payment schedule | Substantially equal periodic payments; no principal increase, no principal deferral (except under 12 CFR 1026.43(f)), no balloon payment (except under 12 CFR 1026.43(f)) (12 CFR 1026.43(e)(2)(i)) |
| Repayment ability assessment | Creditor must consider and verify income/assets, debt obligations, alimony, child support, and monthly debt-to-income ratio or residual income using third-party records (12 CFR 1026.43(e)(2)(v)) |
| APR vs. average prime offer rate | Must not exceed the APOR for a comparable transaction as of the date the interest rate is set, by the amounts specified in 12 CFR 1026.43(e)(2)(vi)(A)–(F), with annual CPI-U adjustment on January 1 |
Exceptions & edge cases
12 CFR 1026.43(e)(2) expressly defers to alternative qualified-mortgage definitions. A transaction may instead qualify under the definitions provided by other agencies (12 CFR 1026.43(e)(4)), as a small creditor portfolio loan (12 CFR 1026.43(e)(5)), under the temporary balloon-payment qualified mortgage rules (12 CFR 1026.43(e)(6), applicable only to applications received before April 1, 2016), or as a seasoned loan (12 CFR 1026.43(e)(7)). Under 12 CFR 1026.43(e)(3)(iii), a covered transaction consummated on or before January 10, 2021, is not precluded from being a qualified mortgage solely because total points and fees exceed the applicable limit, provided the loan otherwise meets the requirements of 12 CFR 1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f), and the creditor or assignee pays the consumer the amount described in 12 CFR 1026.43(e)(3)(iv) within 210 days after consummation and prior to specified events, and maintains and follows the required post-consummation review policies and procedures.
Sources
- [1]U.S. Government Publishing Office / Consumer Financial Protection Bureau — 12 CFR 1026.43 — TILA — ability-to-repay requirements and qualified mortgages · as of 2026-08-28
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