# Ability-to-repay rule

> The ability-to-repay rule makes most mortgage lenders verify in good faith that you can afford the loan. The eight factors and which loans are exempt.

URL: https://mortgage-math-us.com/glossary/ability-to-repay/  
Last reviewed: 2026-10-29 · By the MortgageMath US Editorial team

## Quick answer

**The ability-to-repay rule** is the Regulation Z requirement (12 CFR 1026.43) that a lender make a reasonable, good-faith determination, based on verified information, that you can repay a mortgage before making it. It applies to most closed-end consumer loans secured by a home.

## Key facts

| Fact | Value | Source | As of |
|---|---|---|---|
| Construction phase exempt if no longer than | 12 months | [12 CFR 1026.43](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-E/section-1026.43) | Oct 22, 2026 |

## The eight factors

The lender must consider and verify:

1. Your current or reasonably expected income or assets, other than the home itself
2. Your employment status, if it relies on job income
3. The monthly payment on the loan
4. Payments on any other loan taken out at the same time
5. Mortgage-related costs such as property taxes, insurance and HOA dues
6. Your current debts, alimony and child support
7. Your [debt-to-income ratio](https://mortgage-math-us.com/glossary/debt-to-income-ratio/) or [residual income](https://mortgage-math-us.com/glossary/residual-income/)
8. Your credit history

On an adjustable-rate or teaser-rate loan, the payment must be figured at the higher of the introductory rate and the fully indexed rate, not the teaser alone. The [debt-to-income guide](https://mortgage-math-us.com/buying/debt-to-income/) shows how lenders run the numbers.

## Which loans it covers

Purchase loans, refinances and closed-end home equity loans are covered. HELOCs and timeshare loans are outside the rule; reverse mortgages, short-term bridge loans and a construction phase of 12 months or less are exempt from its repayment test. Loans for rental property you won’t live in are business credit and not covered. Most lenders show compliance by making a [Qualified Mortgage](https://mortgage-math-us.com/glossary/qualified-mortgage/); others make [non-QM loans](https://mortgage-math-us.com/glossary/non-qm-loan/) under the general standard.

## Sources

- [12 CFR 1026.43](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-E/section-1026.43) — Construction phase of a construction-to-permanent loan is exempt from the ability-to-repay rule if no longer than (Oct 22, 2026)
- [CFPB: What is the ability-to-repay rule?](https://www.consumerfinance.gov/ask-cfpb/what-is-the-ability-to-repay-rule-en-1787/)
- [eCFR: 12 CFR 1026.43 (ability to repay and qualified mortgages)](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-E/section-1026.43)

_General information, not financial advice._