Discriminating against someone who’s trying to get a mortgage loan is against the law. Know your rights and what to do if you suspect discrimination.
Fair and equal access to credit and mortgage loans is an important way for people to build wealth and become home owners. Two federal laws can protect you against discrimination when you apply for a mortgage: the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA).
It can be difficult to know if a creditor is rejecting your loan application, charging you more for a loan, or offering you less-favorable terms based on illegal discrimination — or if it’s because of some weaknesses in your loan application. This is even more challenging because creditors often must ask you for (and evaluate) personal information — like your income, expenses, debts, and credit history. And, creditors may ask you to volunteer certain information that might seem discriminatory — for example, race, ethnicity, age, sex, and marital status (married, unmarried, or separated) — because it helps the government keep statistics that fight discrimination. You don’t have to supply the information.
The ECOA applies broadly to any organizations or people who regularly extend credit. That includes banks, small loan and finance companies, mortgage companies, retail and department stores, credit card companies, and credit unions. The law makes it illegal for creditors to discriminate based on race, color, religion, national origin, sex, marital status, age, or because all (or part) of a person’s income comes from public assistance or because the applicant has in good faith exercised a right under the Consumer Credit Protection Act. Everyone who participates in the decision to grant credit, or in setting the terms of that credit, must comply with ECOA’s prohibition against discrimination, including real estate brokers who arrange mortgage financing.
The FHA protects people from discrimination when they’re engaging in housing-related activities. This applies to all aspects of residential real-estate transactions including making loans to buy, build, repair, or improve homes. This law makes it illegal to discriminate based on race, color, religion, sex, national origin, disability, or familial status. (Familial status refers to the makeup of your family, including whether your household includes children under the age of 18 or pregnant women).
Below are some examples of what is (and what is not) illegal mortgage discrimination under the ECOA and/or FHA.
With respect to mortgage loans, during the application process or when making a credit decision, a creditor
When evaluating your income, a creditor
A lot of factors go into a creditor’s decision to approve your mortgage application, and not everyone who applies for a mortgage will qualify to get one. The best time to improve your chances of getting approved is before you even apply.
Check your credit report. This is an important way to prepare before you apply. Creditors will look at your income, expenses, debts, and credit history to make decisions about the strength of your mortgage loan application. Some of that information is in your credit report, and you want to make sure what’s there is correct. If your credit report has inaccurate information, you can dispute those errors with the credit bureau.
Clear up past due debts. Use the accurate information on your credit report to contact the companies you owe, verify the past due amount, and pay off or pay down the debt.
Estimate the monthly payment you can afford. Knowing this information upfront will help you apply for a loan that fits your budget.
Determine your down payment. The amount of your down payment can determine the type of loans you qualify for.
There’s a lot more information about Shopping for a Mortgage.
When your mortgage application is ready for review, the creditor has to look at whether you have reliable income and are likely to be able to pay back the loan.
The law says that creditors must consider these as reliable sources of income:
A creditor may ask for proof that you get this income consistently.
If you meet the creditor’s requirements, the creditor cannot require a co-signer. (A co-signer is someone who promises to pay the loan if the borrower misses any payments.) But if you’ll own the property with your spouse, the creditor can ask them to co-sign the loan documents. If you need a co-signer, a creditor must accept someone other than your spouse as a co-signer.
There are a lot of factors that go into evaluating and approving mortgage loan applications. You might not be approved the first time you apply. If a creditor approves your loan, they must tell you within 30 days of getting your completed application.
If a creditor denies your application, they must:
Review the reasons for the denial carefully. An unacceptable reason might be “you didn’t meet our minimum standards.” That’s not specific enough and you’ll want to ask for an explanation. If you have trouble getting an acceptable explanation, or you suspect discrimination, report it.
Acceptable reasons for rejecting your application might be “your income was too low” or “you haven’t been employed long enough.” Other acceptable reasons why people don’t get loans include
If a creditor offers you less favorable terms than you applied for, you also have the right to learn the specific reason why, but only if you reject the terms. For example, if the creditor offers you a smaller mortgage or a higher interest rate and you decide to accept those terms from the creditor, you don’t have the right to know why the creditor offered you those terms.
If you think a creditor has rejected your loan application, charged you more for a loan, or offered you less-favorable terms based on illegal discrimination, there are steps you can take: