Finance
A Virginia borrower with a 'no-doc' or stated-income loan applies today. Under modern lending regulations after the 2010 Dodd-Frank Act, lenders must:
AAccept stated income without verification
BVerify the borrower's ability to repay using documented income, assets, and employment✓ Correct
COnly check the property's value
DRely solely on the credit score
Explanation
The Dodd-Frank Act's Ability to Repay (ATR) rule requires lenders to verify a borrower's ability to repay using documented income, assets, employment, and debt obligations. 'No-doc' loans violate ATR requirements.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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.
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