While applying for a home loan might seem like a challenging process, one thing borrowers can take heart from is they have substantial rights in the lending process from beginning to end. Even so, if you don’t know how you’re protected, you can’t protect yourself. It’s important for borrowers to know their rights and when to stand their ground if they think something’s wrong.
First, you have two substantial federal laws working in your favor: the Equal Credit Opportunity Act (ECOA), and the Fair Housing Act (FHA) – not to be confused with the other FHA, the Federal Housing Administration.
In the meantime, here are some key areas where you should know your rights:
Equal access to credit for all
The ECOA forbids credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or whether you receive income from a public assistance program. Creditors may ask you for the latter to determine your debt-to-income ratio (DTI) to ensure you can afford the monthly loan payments, but they may not use it as a reason to deny you credit or to set the terms of your credit.
Appropriate use of information
A bank or lending institution is never allowed to ask your religion, and for women and married couples, they cannot ask whether you or your spouse plan to have a family or are pregnant on the assumption that one earner could drop out of the workforce to care for children. Additionally, they cannot exclude a single buyer if he or she meets the credit and income criteria.
Everyone who participates in the decision to grant credit or in setting the terms of that credit, including real estate brokers who arrange financing, must comply with the ECOA. Moreover a real estate broker can be fined in many states for “steering” borrowers to in-house lenders or favored lenders. You always have the choice of picking your own lender and title company for closing.
The FHA also has strong protections against “redlining” where banks refuse to make loans in certain neighborhoods based on the applicant’s race or other impermissible discriminatory factors. A bank may refuse to make a loan in a certain neighborhood based on propensity for a natural disaster like a flood or an earthquake but never on the basis of race or other discriminatory factors.
Know and understand your credit scores
You also have a right to know your credit, before and after you apply for a loan. The Fair Credit Reporting Act (FCRA) requires each of the three nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months.
The Federal Trade Commission (FTC) says that if your application is denied, the lender must give you specific reasons – or tell you that you have the right to ask for the reasons. Moreover, you have the right to find out whether your loan is approved within 30 days of submitting your completed application. If your application is rejected, the lender must tell you in writing specific reasons why your application was denied or tell you that you have the right to know if you ask within 60 days.
In addition, the FTC says that an acceptable reason for a lender to deny you a loan might be “your income was too low” or “you haven’t been employed long enough.” If a lender just vaguely says, “You didn’t meet our minimum standards” that’s not specific enough information, according to the commission.
For example, if lender offers you a smaller mortgage or a higher interest rate, under ECOA, you have the right to know why. Mortgage applications may be turned down because of low appraisals, but “lowballing” an appraisal so as not to fund the loan is illegal. Check that the appraisal has accurate information and determine whether the appraiser considered illegal factors, like the racial composition of the neighborhood in its valuation.
Protection through closing
Even at the end of the loan process you have very specific protections. Since October of 2015, just before you close, you must be given at least three business days to look over the Closing Disclosures and be given an opportunity to have every charge on the documents explained to you. Moreover, if some of the charges change significantly between the three-day disclosure period and your closing, such as the interest rate of the loan, the addition of a pre-payment penalty or a change in the type of loan, the bank must issue you a new Closing Disclosure document.
Bottom line, if you feel you’ve been discriminated against or information wasn’t readily supplied, you can file an ECOA complaint with the Consumer Financial Protection Bureau (CFPB). Any complaints protected by the Fair Housing Act can be filed with the U.S. Department of Housing and Urban Development (HUD) within one year of the alleged discrimination.
Published Nov. 9, 2017
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