Which statement defines the term capacity? A. a borrower’s willingness to repay a loan B. a borrower’s ability to repay a loan C. a borro

Question

Which statement defines the term capacity? A. a borrower’s willingness to repay a loan B. a borrower’s ability to repay a loan C. a borrower’s total assets

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    2021-11-26T08:36:24+00:00

    Answer:

    b

    Step-by-step explanation:

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    2021-11-26T08:36:34+00:00

    Answer:

    B. A borrower’s ability to repay a loan

    Step-by-step explanation:

    Capacity measures the borrower’s ability to repay a loan by comparing income against recurring debts and assessing the borrower’s debt-to-income (DTI) ratio. Lenders calculate DTI by adding together a borrower’s total monthly debt payments and dividing that by the borrower’s gross monthly income. The lower an applicant’s DTI, the better the chance of qualifying for a new loan. Every lender is different, but many lenders prefer an applicant’s DTI to be around 35% or less before approving an application for new financing.

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