What is the maximum debt-to-income ratio allowed for a Qualified Mortgage?

The correct answer is 43%, which is significant in the context of Qualified Mortgages (QMs). The 43% debt-to-income (DTI) ratio is established as a benchmark under the Ability to Repay (ATR) rule, which is designed to ensure that borrowers are able to repay their loans without suffering undue financial hardship. This ratio reflects the maximum amount of a borrower's monthly gross income that can be allocated towards debt servicing, including mortgage payments, loans, and other obligations.

By setting the DTI limit at 43%, regulators provide a guideline that aims to protect both lenders and borrowers, minimizing the risk of defaults while maintaining access to credit for consumers. It highlights the importance of assessing a borrower's financial situation comprehensively, ensuring they do not take on more debt than they can manage. Therefore, a QM ensures that borrowers are likely to have stable loan terms and a lower risk of foreclosure, contributing to a healthier housing market and financial ecosystem.