What is the ability-to-repay rule? Why is it important to me?
The ability-to-repay rule is the reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan.
Under the rule, lenders must generally find out, consider, and document a borrowers income, assets, employment, credit history and monthly expenses. Lenders cannot just use an introductory or teaser rate to figure out if a borrower can repay a loan. For example, if a mortgage has a low interest rate that goes up in later years, the lender has to make a reasonable effort to figure out if the borrower can pay the higher interest rate too.
One way a lender can follow the ability-to-repay rule is by making a "Qualified Mortgage."