What is the ability-to-repay rule?

Short answer

The rule generally requires most lenders to make a reasonable, good-faith finding that you can repay a mortgage before they make the loan. The CFPB says lenders typically must collect, consider, and document income, assets, employment, credit history, and monthly expenses, and they cannot judge repayment using only a low introductory rate. Originating a is one way a lender can follow the rule; it is not the same as a promise of approval.

Full explanation

Under the ability-to-repay rule, most lenders may not issue a mortgage unless they reasonably determine, in good faith, that the borrower can repay it. The CFPB describes this as a documentation duty, not a promise that any particular applicant will be approved.

Lenders generally must obtain and weigh income, assets, employment, credit history, and monthly expenses. If the loan starts with a low rate that later rises, the CFPB says the lender has to make a reasonable effort to see whether the borrower could also handle the higher later rate. An introductory or teaser rate alone is not enough.

Making a Qualified Mortgage is one way a lender can follow the rule. Not every loan that follows the ability-to-repay rule is necessarily a Qualified Mortgage. The cited CFPB source does not list Qualified Mortgage tests, exemptions, or numeric underwriting cutoffs, so those details are not stated here. This is a current federal rule and can be updated.

Sources reviewed