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
Lender's written statement and accounting for the remaining balance, date of maturity, and interest rate on a mortgage. The lender is certifying this information to the borrower or any ...
Allocating the price paid to purchase to or more properties based on their appraised values. ...
State court where civil disagreements are decided by the judge or jury. A written record is kept of the deliberations. In some stats, civil and criminal courts are combined. ...
Legal agreement not to perform an activity similar to that performed by another individual or business. This contractual provision may be necessary to keep trade secrets, prevent taking ...
Yearly tax return filed by an individual or couple. It is due to the federal taxing authority on April 15 for the preceding calendar year. The taxpayer reports gross income, adjustments to ...
Costs incurred in connection with real property that increase its cost basis or worth, such as a new roof, an additional room, or paneling a room. ...
(1) Anything of value given to induce a person or entity into entering a contract. It may be money, personal services, or the trading of property. A valid contract requires adequate ...
In real estate, asking price is referred to as the amount set by the seller, the amount he/she wants to receive for the purchase of their home by the buyer. The asking price isn’t ...
Wondering what For Rent By Owner (FRBO) means?It’s the more popular cousin of For Sale By Owner (FSBO). For Rent By Owner (FRBO) are really common; it’s the name we give to ...
Have a question or comment?
We're here to help.