What is a qualified mortgage?

A qualified mortgage is a mortgage that meets specific criteria established by the Consumer Financial Protection Bureau (CFPB). These criteria are designed to ensure that borrowers have the ability to repay their loans and to provide certain protections against predatory lending practices. A qualified mortgage typically includes features such as limits on fees and points, no negative amortization, no interest-only loans, and evidence that the borrower has a stable income and a reasonable debt-to-income ratio.

This designation helps to ensure a level of safety and reliability in the mortgage lending process, benefitting both borrowers and lenders by reducing the risk of default. Therefore, the focus on standardized criteria and borrower protections makes the first option the correct one.