Ability To Pay
The ability to pay is a self-explanatory term used in Real Estate to determine if the Home Buyer has the financial health to honor a deal.
Mortgage Lenders can't afford to lend out money to whoever they like; they need to know if the borrower is able to pay the loan back. There are several calculations done to assert a home buyer's (or a borrower's) ability to pay, and the debt-to-income ratio calculation and the credit score evaluation are the most famous ones.
In many ways, it was the lack of attention to this economic principle on the Lender's part that led the country and, especially, the business into the "Great Recession" of 2008. Both lenders and borrowers didn't care about the ability to pay and suddenly no one was paying for the loans anymore. Lots of foreclosed homes and the rest is History... and we hope it stays like this: History!
Real Estate Tips:
Test your ability to learn by continuingly searching terms on our Real Estate Glossary!
Popular Real Estate Terms
The largest financial intermediaries directly involved in the financing of real estate. Commercial banks act as lenders for a multitude of loans. While they occasionally provide financing ...
Two or more people have a legal duty that can be enforced against them by joint action, against all members, and against themselves as individuals. For example, a bank can require repayment ...
The profit or loss from selling an investment that is held one year or less. Short-term gains are ordinary income, while short-term losses are deducted from current income. Short-term gains ...
A capital asset. An expenditure to buy property and other capital assets that generate revenue. Securities of real estate companies. ...
Any of several types of legal joinders whereby one or more parties unites with or joins other parties in a legal action or proceeding even though the party may not be a direct part of the ...
Intent to deceive or never to carry out the provisions of an agreement. ...
Combination of insurance policies on property with each providing an additional increment of coverage exceeding the limits of the preceding policy. For example, policy A adds $70,000, then ...
Used to indicate what is included in a monthly payment on rental property. If the payment includes only principal and interest, property taxes, and hazard insurance would make the total ...
Having two families live in a residence designed for only one family. This violates single-family residence zoning. ...
Have a question or comment?
We're here to help.