What does ATR have to do with my home loan?

ATR is an acronym first brought to life after the 2008 housing financial crisis. In the meantime, the concept of Ability To Repay and it’s implications, have been in play as long as lending has existed.

According to the regulation (https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=25d9a9f6d7288ccf109d4f659e176354&mc=true&n=pt12.9.1026&r=PART&ty=HTML#se12.9.1026_143), it says: “A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.”

The key phrase is “reasonable ability to repay the loan.” That helps define the next section:

“(2) Basis for determination. Except as provided otherwise in paragraphs (d), (e), and (f) of this section, in making the repayment ability determination required under paragraph (c)(1) of this section, a creditor must consider the following:

(i) The consumer’s current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan;

(ii) If the creditor relies on income from the consumer’s employment in determining repayment ability, the consumer’s current employment status;

(iii) The consumer’s monthly payment on the covered transaction, calculated in accordance with paragraph (c)(5) of this section;

(iv) The consumer’s monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with paragraph (c)(6) of this section;

(v) The consumer’s monthly payment for mortgage-related obligations;

(vi) The consumer’s current debt obligations, alimony, and child support;

(vii) The consumer’s monthly debt-to-income ratio or residual income in accordance with paragraph (c)(7) of this section; and

(viii) The consumer’s credit history.”

If I haven’t lost you at this point, this ability to repay, or capacity to repay, basically breaks down into the 3 main categories of lending: your income (and it’s stability) and assets, your credit history, and your current debt load. This is critical because all of the documentation requested from you in a home mortgage loan transaction that seems so tedious and over the top, is actually an attempt by the lender to complete this part of their requirements. So let’s review a few of the above…

2 above: you have to be reasonably expected to continue your income.

3 above: this payment included.

4 above: why they are concerned about you applying anywhere else at the same time.

5 above: why they are concerned about your other mortgage payments and whether property tax, homeowner’s insurance, and even homeowner’s association dues are included.

6 above: why all current debts including child support and alimony matter.

Yes, there’s no numbers here, no exact percentage, no acceptable and non-acceptable items. Much is left up to the lender and their interpretation. But using this as a basis for considering income, a host of rules and regulations have been issued supporting these basic concepts. So what does this mean?

Simply put, it’s good to find a lender with more than one option, with options that include ways of looking at bank statements, 1099’s, or even profit and loss reports in order to calculate income (Why Non-QM is more important than ever!), start your journey here: https://www.successmortgagepartners.com/corey-vandenberg/