What does "qualified mortgage" refer to?

A "qualified mortgage" refers to a category of loans that meet specific criteria established by regulatory bodies to ensure that borrowers have the ability to repay their loans. These criteria were introduced as part of the Dodd-Frank Act to protect consumers from risky lending practices that contributed to the housing crisis.

Qualified mortgages typically have features that limit the lender’s risk and enhance borrower protection, such as caps on fees and points, limitations on loan terms, and requirements for comprehensive documentation of a borrower's income and financial history. The focus is on ensuring that borrowers can sustain their mortgage payments, thereby reducing the likelihood of default.

In contrast, a mortgage designed specifically for first-time homebuyers might offer unique benefits, but it doesn't inherently ensure the borrower's ability to repay. Similarly, lower interest rates are attractive, but they do not indicate whether a mortgage is qualified. Finally, flexible eligibility requirements typically suggest a broader access to loans, but this flexibility can sometimes lead to less thorough assessment of repayment ability, which is contrary to the principles behind a qualified mortgage.