Earlier this year lenders began implementing QM guidelines as directed by the Consumer Financial Protection Bureau, or CFPB. QM stands for “qualified mortgage” which means a loan that follows certain guidelines receives special protections, primarily from being sued by a borrower for issuing a faultynon-qm lending loan or one ultimately causing a borrower to ultimately go into default. Most lenders today follow such guidelines and pretty much every conventional mortgage made today falls under QM status.

QM status means a borrower’s total debt-to-income ratios do not exceed 43 percent. If they do exceed 43 percent, the lender must document the reason for exceeding the limit such as substantial liquidity or credit scores above 800. There are other guidelines but if a lender wants to sell loans in the secondary market, it’s easier to do so with a QM.

There are other times when a QM either won’t work or otherwise apply to a borrower. For example, a self-employed borrower has erratic income, like say a real estate investor who regularly flips homes. The investor may certainly have enough money to qualify but the income may not be consistent enough for the lender. Yet a few lenders are stepping into the non-QM space, offering needed financing to qualified borrowers.

Debt ratios above 50 or higher loan-to-value mortgages in the super jumbo category, those loans above $1M in most parts of the country. What does this mean for the real estate investor? It means there are more financing options available than there used to be. For long term investors, conventional loans underwritten to Fannie Mae and Freddie Mac are easily the most affordable yet sometimes they’re not a fit. Instead of walking from the deal entirely, there are other lenders making their way to QM loans. It might take a bit of research, but they’re out there.