What does the term "qualified mortgage" refer to?

The term "qualified mortgage" refers to a type of mortgage that meets specific borrower repayment standards established by regulations, particularly under the Dodd-Frank Act. This classification is designed to ensure that the mortgage borrower has the financial capacity to repay the loan, thereby reducing the risk of default.

Qualified mortgages typically have features that make them safer for consumers. These can include limits on the amount of debt a borrower can take on relative to their income, requirements for full documentation of income and assets, and restrictions on certain risky loan features, such as interest-only payments or negative amortization. The essence of a qualified mortgage is its alignment with guidelines that foster responsible lending and protect consumers from being placed in financially precarious situations.

Options involving adjustable interest rates, no down payment requirements, or limitations to first-time buyers do not capture the essence of what defines a qualified mortgage, as these criteria can apply to a broader range of mortgage products and do not inherently include the fundamental aspects of borrower repayment standards or consumer protections.