What Are the 4 Types of Qualified Mortgages?

Under federal lending rules, the four types of qualified mortgages are General, Small Creditor, Balloon-Payment, and Seasoned. Each one gives the lender legal protection against claims that it ignored the Consumer Financial Protection Bureau’s Ability-to-Repay rule, which requires lenders to confirm a borrower can actually afford the loan before making it.¹ All four share the same baseline product restrictions, but they serve different lenders and borrowers, and the strength of the legal shield varies by category.

Rules Every Qualified Mortgage Must Follow

Before a loan fits into any of the four categories, it has to clear a set of product rules meant to keep the riskiest features out of the mortgage market. The loan cannot allow negative amortization, where the balance grows even as you pay. Interest-only periods are prohibited. The term cannot exceed 30 years.² Payments must stay substantially equal over the life of the loan, with adjustments allowed only for rate changes on adjustable-rate mortgages.³

Every QM also caps the points and fees a lender can charge at closing, with limits that adjust annually for inflation. For a loan of $137,958 or more in 2026, the cap is 3% of the total loan amount, with progressively more generous tiers for smaller loans so originating them stays viable.⁴ If a loan blows past the applicable cap, it cannot be a QM regardless of how comfortably the borrower can afford the payments.

What QM Status Actually Gives the Lender

The four categories do not all deliver the same level of protection. The strength of the shield depends on how the loan is priced relative to market rates, measured by the spread between the loan’s annual percentage rate and the average prime offer rate for a comparable transaction.

A QM that is not “higher-priced” receives safe harbor. The lender conclusively satisfies the Ability-to-Repay requirements, and a borrower essentially cannot challenge the loan on those grounds.³ A higher-priced QM gets a rebuttable presumption instead. The lender is presumed to have complied, but a borrower can push back by showing the lender knew, or should have known, that the borrower’s income and debts would leave too little for living expenses after the mortgage payment.⁵

The higher-priced threshold is 1.5 percentage points above the average prime offer rate for a first-lien General QM, and 3.5 percentage points for first-lien Small Creditor and Balloon-Payment QMs. Seasoned QMs are the outlier: they get safe harbor regardless of pricing once they finish seasoning.⁶

When a loan is not a QM at all, a borrower can raise an Ability-to-Repay violation as a defense to foreclosure. The damages can include the sum of all finance charges and fees the borrower paid, statutory damages between $400 and $4,000, and attorney’s fees.⁷ That exposure is why most lenders work hard to fit their loans into one of the four categories.

General Qualified Mortgages

The General QM is the category most borrowers encounter. It covers loans from large banks, online lenders, and most other mortgage originators, and it uses a price-based test: the loan’s APR cannot exceed the average prime offer rate by more than a specified spread. For a standard first-lien loan of $137,958 or more, that ceiling is 2.25 percentage points.⁴ Smaller loans carry proportionally higher origination costs and get more room:

First-lien, $82,775 to $137,957: spread below 3.5 percentage points
First-lien, below $82,775: spread below 6.5 percentage points
First-lien manufactured home below $137,958: spread below 6.5 percentage points

A loan that exceeds the applicable spread does not qualify as a General QM. Even within the spread limit, a loan priced 1.5 points or more above the average prime offer rate lands in rebuttable presumption rather than safe harbor.³ Conventional conforming loans priced near market rates generally get safe harbor; loans carrying above-average risk premiums generally do not.

The General QM no longer uses the 43% debt-to-income ceiling that was once the main qualification metric. The CFPB replaced that cap with the pricing test in 2020. Lenders still have to verify your income, employment, debts, and assets.¹ The specific DTI number just no longer determines whether the loan qualifies. A borrower with a 48% DTI can get a General QM if the pricing is tight enough; a borrower at 35% can be denied one if the pricing suggests elevated risk.

For adjustable-rate mortgages whose rate can change within the first five years, lenders must calculate the APR using the maximum rate that could apply during that period, not the introductory rate.³ This prevents a lender from qualifying a loan on a teaser rate that would price the borrower out once the adjustment hits.

Small Creditor Qualified Mortgages

Community banks and credit unions that meet specific size limits can originate QMs without passing the General QM pricing test. In exchange, they have to keep the loan on their own books, aligning their financial interests with the borrower’s ability to repay.

Two thresholds define a small creditor. First, the institution and its affiliates must have total assets below the annually adjusted limit, which is $2.785 billion for 2026.⁸ Second, the creditor and its affiliates must have sold, assigned, or transferred no more than 2,000 first-lien residential mortgages in the preceding calendar year. Loans the creditor originates and keeps in portfolio do not count against that 2,000-loan ceiling, so a community bank can originate well past that number and still qualify as long as it holds most of them.³

The portfolio holding requirement runs at least three years after closing. Selling the loan within that window generally strips its QM status. Exceptions apply when the transfer results from a merger or acquisition, a regulatory action, or a sale to another institution that independently meets the small creditor thresholds.³ These rules keep the designation with institutions genuinely invested in their local borrowers.

Small Creditor QMs also get a wider higher-priced threshold. The loan is not considered higher-priced unless its APR exceeds the average prime offer rate by 3.5 percentage points, versus 1.5 points for General QMs. More Small Creditor QMs land in safe harbor as a result, even when their pricing reflects the higher costs of rural or community lending.

Balloon-Payment Qualified Mortgages

Every other QM type bans balloon payments, where most of the principal comes due in a single lump sum at the end of the term. Balloon-Payment QMs are a narrow exception for small creditors operating primarily in rural or underserved communities, where the economics of long-term fixed-rate lending can be hard for small institutions to sustain.

The creditor must meet the same asset and loan-volume thresholds as the Small Creditor category, plus one more test: more than half of the creditor’s first-lien loans in the prior year must have been secured by properties in rural or underserved areas.⁹ “Rural” generally means a county outside both metropolitan and adjacent micropolitan statistical areas, or a census block outside an urban area as defined by the Census Bureau. “Underserved” means a county where no more than two creditors made five or more first-lien mortgage loans in the prior year. The CFPB publishes updated county lists each year.

The loan itself must carry a fixed interest rate and have a term between five and 30 years, with substantially equal periodic payments calculated on an amortization schedule of 30 years or less.³ When assessing the borrower’s ability to repay, the lender evaluates the regular monthly payments and excludes the final balloon amount from the calculation. That reflects the reality for borrowers in seasonal economies like agricultural communities, where refinancing or selling before the balloon comes due is the expected outcome. The lender must also hold the loan in portfolio for at least three years.

Seasoned Qualified Mortgages

The Seasoned QM is the only category that lets a loan earn qualified mortgage status after origination rather than at closing. A first-lien, fixed-rate loan that was not a QM when it was made can achieve safe harbor protection by demonstrating 36 months of strong payment performance.⁶ The loan still has to satisfy the standard QM product restrictions at origination: no negative amortization, no interest-only payments, a term of 30 years or less, and points and fees within the applicable caps. It cannot be a high-cost mortgage.

The performance standard during the 36-month seasoning period is strict. The loan can have no more than two instances of 30-day delinquency and zero instances of 60-day delinquency.³ A payment counts as 30 days late if it has not arrived by the end of the following month’s billing cycle. A single 60-day delinquency disqualifies the loan entirely.

If the borrower enters a temporary payment accommodation tied to a federally declared disaster or pandemic, that time does not count toward the 36-month clock, but it does not reset it either. The seasoning period pauses and resumes once the borrower cures any delinquency, either under the loan’s original terms or through a qualifying modification. The creditor must generally hold the loan in its own portfolio throughout the seasoning period, though a single transfer to another holder is permitted as long as the loan is not securitized before the period ends.⁶

Once the 36 months are complete and the performance requirements are satisfied, the loan receives safe harbor status regardless of its APR. For a loan that started life as a non-QM or as a higher-priced QM with only rebuttable presumption, seasoning permanently upgrades its legal shield.

What These Four Categories Do Not Cover

The four categories describe the private-market QM landscape, not every mortgage out there. Federal agencies including the FHA, the VA, and the USDA define their own qualified mortgage standards under a separate regulatory provision.³ A loan insured or guaranteed by one of these agencies can qualify as a QM under the agency’s own rules rather than the General QM pricing test. FHA loans, for example, still factor in debt-to-income ratios as part of their QM criteria, even though the CFPB dropped the DTI requirement for General QMs in 2020.

Loans that do not fit any QM definition are called non-qualified mortgages. They are not illegal; lenders can still make them as long as they comply with the Ability-to-Repay rule in some demonstrable way. Non-QM loans typically carry higher interest rates, larger down payment requirements, and more flexible income documentation standards. Self-employed borrowers, real estate investors, and people with nontraditional income are the most common users. Without QM status, the lender has no safe harbor or presumption of compliance if the borrower later challenges the loan, and non-QM rates build in a premium for that litigation risk.

1
Consumer Financial Protection Bureau. What Is the Ability-to-Repay Rule?
2
Consumer Financial Protection Bureau. What Is a Qualified Mortgage?
3
eCFR. 12 CFR 1026.43 – Minimum Standards for Transactions Secured by a Dwelling
4
Federal Register. Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and Qualified Mortgages)
5
Consumer Financial Protection Bureau. 12 CFR Part 1026 (Regulation Z) – 1026.43 Minimum Standards for Transactions Secured by a Dwelling
6
Federal Register. Qualified Mortgage Definition Under the Truth in Lending Act (Regulation Z): Seasoned QM Loan Definition
7
Office of the Law Revision Counsel. 15 U.S. Code 1640 – Civil Liability
8
Federal Register. Truth in Lending Act (Regulation Z) Adjustment to Asset-Size Exemption Threshold
9
Consumer Financial Protection Bureau. 12 CFR Part 1026 (Regulation Z) – 1026.35 Requirements for Higher-Priced Mortgage Loans