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
Evaluating a locality to determine its value and appropriateness for designated objectives. ...
Income for investors arising from net long-term profits of a real estate mutual fund realized when the portfolio is sold at a gain. Fund managers pass on profits from sales of real estate ...
(1) Any asset purchased for use in production over long periods of time rather than for resale. It includes land, buildings, plant, and timber reserves. (2) In taxation, property held by a ...
Recording an expenditure having a benefit of more than one year to the cost of the property. ...
Legally proper instrument under seal that transfers title to real property from the seller to buyer. ...
A floor where the binding joists support the common joists above and the ceiling below. ...
Bond whose interest is free of federal, state, or local tax in the state of the issuer. It is typically a municipal bond of estate or county agency. For example, a New York City resident ...
A court order on an issue directly related to the immediate action. ...
An upper limit on the interest rate that can be charged in a variable rate mortgage over its life. For example, a variable rate loan is initially offered at 7% loan rate, and its interest ...
Have a question or comment?
We're here to help.