Ability To Pay
Definition of "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
A Construction method of using twice the number of framing members to provide additional structural strength. ...
Item falling under Section 57 of the Internal Revenue Code that may result in the imposition of the alternative minimum tax (AMT). These items of otherwise exempt income or deductions or of ...
A closed-end mortgage is a mortgage in which the collateralized property cannot be used as security for another loan. See also open-end mortgage for a better understanding of the ...
Corporation whose stockholders are taxed as partners. That is, income is taxed as direct income to the shareholders. The key advantage of this tax treatment is that shareholders escape ...
A zero lot line is a term in residential real estate that refers to houses that are either very close to or at the edge of the property line. These houses are also called zero lot line ...
Want to know what Net Listing means? Well, Net Listings are a type of listing where the home seller sets a minimum price he/she is willing to sell the property for and whatever amount above ...
(1) Judgment against a defendant who does not respond to the plaintiffs lawsuit or fails to appear in court at the hearing or trial date. (2) Judgment issued by the court against the ...
Typically, the term rider defines a financial concept, implying a written modification applied to an insurance policy, altering its initial clauses and provisions. The rider can update the ...
Situation where a neighbor hood is gradually occupied by progressively lower income people. ...
Have a question or comment?
We're here to help.