How is "ability to repay" assessed in a Qualified Mortgage (QM)?

The concept of "ability to repay" in the context of a Qualified Mortgage (QM) is a critical component that ensures lenders make responsible lending decisions. The correct answer emphasizes the comprehensive nature of this assessment.

Lenders are required to evaluate several key factors when determining a borrower's ability to repay a mortgage. This includes the borrower's income, which helps establish whether the individual can meet monthly payment obligations based on their earnings. Employment status is also crucial, as it indicates the stability of income and the likelihood of continued earning potential over the life of the loan. Additionally, lenders assess the borrower's credit history, which provides insight into past borrowing behavior and the borrower's reliability in repaying debts.

By examining these three components—income, employment status, and credit history—lenders can form a well-rounded understanding of a borrower's financial situation, which is essential for responsible lending practices. This thorough assessment helps mitigate risks associated with lending and supports the goals of the QM framework, which aims to protect consumers from high-risk lending practices.

In contrast, the other choices do not encapsulate all necessary elements of the assessment process. For example, focusing solely on employment status would neglect the importance of income and credit history, resulting in an incomplete evaluation. Similarly,