This is a great question! First, it depends on if you are underwriting a Non-QM or a QM… and which kind of QM!
Briefly, Non-QM loans (standard ATR) must compute the payment based on the greater of the intro rate or fully indexed rate. For some borrowers, that higher fully indexed rate might disqualify their ability to repay the loan. Some QMs compute the payment using the max rate possible in the first 5 years after the first payment date, and some QMs don’t care!
Learn all about the impact of variable rates in ATR / QM underwriting at the upcoming webinar “Taking a Fresh Look at Qualified Mortgages and the Ability-To-Repay Rule” on February 15, 2023!
Learn more about Rebekah Leonard’s Taking a Fresh Look at Qualified Mortgages and the Ability-To-Repay Rule webinar.