What are the “Ability to repay” rules about?
In a nutshell, as this video shows, new laws require lenders to make a good-faith assessment of a borrower’s capacity to pay back their loan over time.
It’s a longer-term view that goes beyond immediate income, debt, and credit rating.
These new Federal laws, supervised by the CFPB, require lenders to ask more questions about income, assets, employment, credit history, and monthly expenses – as they relate to the proposed loan.
For example, a lender offering a mortgage with a low initial rate must try to assess how a borrower will handle the later, higher rate as well.
If you’re applying to borrow, ask whether the program you’re considering is a Qualified Mortgage. Ability-to-repay rules are built into loans that meet Qualified Mortgage guidelines.