What must lenders ensure about the borrower’s ability to repay under the QM guidelines?

Under the Qualified Mortgage (QM) guidelines, lenders are required to ensure that borrowers have a reasonable ability to repay their loans. This is a fundamental principle designed to promote responsible lending practices and protect consumers from taking on loans they cannot afford to repay.

The emphasis on a "reasonable ability to repay" means lenders must assess various factors related to the borrower’s financial situation. This includes analyzing their income, debts, employment status, credit history, and other relevant financial indicators that demonstrate the borrower’s capacity to manage the loan payments over time. The guidelines specifically aim to ensure that borrowers are not subjected to risky financing that could lead to default or foreclosure.

In contrast, while a good credit score, current employment status, and loan amount relative to income are important considerations in determining a borrower's financial health, they do not encompass the broader requirement of assessing overall ability to repay. A borrower could have a good credit score but still struggle with repayment if other factors, such as a high debt-to-income ratio or insufficient income, are unfavorable. Thus, the focus on a reasonable ability to repay integrates all aspects of a borrower’s financial profile to ensure sustainable lending practices.