A borrower’s ability to repay the loan involves the "capacity" and "commitment" to make the loan payments. The borrower’s capacity is measured by: income; job position and stability; and overall financial standing, including assets, liabilities, and net worth, and any profit or losses incurred as the result of any business or investment activity.

This information is reflected in the borrower’s "Loan Application," which may be accompanied by a "Financial Statement" if the borrower is either self-employed or involved with significant business or investment activity. Ask your mortgage loan broker for a copy of the written loan application and the credit report.

To verify the borrower’s representations about capacity to pay, you may examine:

1. verification of employment;

2. income tax records;

3. verification of cash deposits or other assets; and

4. statements from existing lenders reporting amounts owed (beneficiary or payoff demand statements).

The commitment to repay is based on the borrower’s past performance in handling credit. To verify the borrower’s representations about desire to pay, you may ask to review:

1. credit report;

2. reports providing payment history on existing loans, including the number of late payments; and

3. credit references.

When considering the borrower’s capacity and commitment to repay, you should ask whether the borrower has, immediately preceding the request for the loan, borrowed a substantial amount of money. A significant amount of concurrent borrowing may indicate the borrower is experiencing difficulty meeting his or her financial commitments. Extensive borrowing may make it more difficult for the borrower to meet financial commitments.