The 'Ability-to-Repay' (ATR) rule under the Dodd-Frank Act requires lenders to:
Why Make a good-faith determination that the borrower has the financial ability to repay the loan before approving it Is Correct
Answer B: Make a good-faith determination that the borrower has the financial ability to repay the loan before approving it
Exam Tip: Finance
Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.
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Key Terms to Know
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Promissory NoteA written promise to repay a loan under specified terms — the borrower's personal financial obligation in a real estate transaction.
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