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
Person leaving from work to spend time in leisure activities. pay in full the balance on a debt either at or before the maturity date. Penalties may be assessed on prepaying a mortgage. ...
Contract to act on the behalf of a principal in selling real estate. The principal agrees to pay a commission to the broker when a buyer is produced who is ready, willing, and able to meet ...
Also called investment property. Real property held by a business for investment potential or in order to earn income by leasing or letting it, rather than for its own use. ...
Market analysis method where sales of similar properties in proximity neighborhoods are compared. The comparable sales methodology is extremely useful if the properties being compared are ...
person's behavior partly genetic and partly learned through experience over time. Some people have good personal traits while others have poor ones. ...
Created by the US Congress in 1965, the Department of Housing and Urban Development (HUD) is the agency principally responsible for federal programs relating to housing and urban ...
Commitment by a lender to a borrower for a given amount of money at specified terms for the financing of a project. The borrower pays a fee for the privilege of either executing the loan or ...
Nonrefundable fee to pay for the painting and cleaning of an apartment or office unit after a tenant vacates the premises. ...
Day the attachment of property under a judicial order becomes effective. ...
Have a question or comment?
We're here to help.