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
Agreement between a lending institution and borrower where the borrower agrees to extend or spread the collateral of a loan to additional properties beyond the original mortgaged property. ...
Latin term meaning legal capacity to act on behalf of oneself. ...
The net leasable area is all the leasable area of a given building exclusive of non-leasable space such as hallways, building foyers, rooms devoted to heating, air conditioning, elevators, ...
Same as term right of first refusal: Right of an individual to be offered something before it is offered to others. For example, a tenant whose apartment is going to be converted to a ...
The most common definition of economies of scale refers to the decrease in production costs of a single item due to a business enterprise’s expansion. In short, mass production can ...
An interior wall dividing an area into two or more rooms or separate areas. The division of real estate between owners giving each an undivided interest. ...
Precalculated tables providing the present values of $1 or an annuity of $1 for different time periods and at different discount rates. ...
Personal income minus personal income tax payments and other government deductions. It is the personal income available for people to spend or save; also called take-home pay. It may be a ...
Cash outlays required to maintain an investment position. ...
Have a question or comment?
We're here to help.