What is the maximum back-end debt-to-income ratio allowed for a qualified mortgage (QM)?

A qualified mortgage (QM) is designed to ensure that borrowers have the ability to repay their loans, and it includes specific guidelines to protect both lenders and borrowers. One of the key criteria for a QM is the back-end debt-to-income (DTI) ratio, which compares the total monthly debt payments to the borrower’s gross monthly income.

The maximum back-end DTI ratio allowed for a qualified mortgage is set at 43%. This standard was established by regulatory bodies such as the Consumer Financial Protection Bureau (CFPB) as part of the ability-to-repay rule. The intention behind this limit is to reduce the risk of borrower default by ensuring that the borrower's overall debt burden remains manageable relative to their income.

A DTI ratio above this threshold could indicate that the borrower is taking on too much debt relative to their income, which may lead to financial strain and potential default on the mortgage. Thus, the 43% cap serves as a safeguard against over-leverage while still allowing access to credit for many borrowers.

Understanding this ratio is crucial for mortgage professionals since it directly impacts loan eligibility and the overall risk assessment for both the lender and the borrower.