Can a Qualified Mortgage (QM) have a DTI above 43%?

A Qualified Mortgage (QM) generally adheres to strict guidelines established to ensure borrowers can repay their loans. One key aspect of these guidelines is the Debt-to-Income (DTI) ratio, which is typically capped at 43%. However, there is an exception to this rule concerning small creditors.

Small creditors are defined as lenders that have assets below a certain threshold and primarily operate in rural or underserved areas. These small creditors can issue QMs with a DTI ratio exceeding 43% under specific conditions, allowing them greater flexibility compared to larger financial institutions.

The correct choice reflects this nuance within the regulations, highlighting that while most QMs are subject to the 43% DTI limit, small creditors can make loans that exceed this limit if they meet the characteristics stipulated by the regulation. This alignment with the guidelines serves to support lending in communities where options might be limited, while still promoting responsible lending practices.