Financing a home purchase or refinancing a mortgage is a major transaction that few of us undertake frequently or understand well. Mistakes can be costly, so you're right to be concerned about making home financing decisions. Fortunately, mortgage laws protect borrowers from some of the pitfalls commonly encountered during the home loan process.
Mortgage and housing laws protect consumers
While some mortgage laws dictate what constitutes an appropriate disclosure, others protect borrowers from predatory lending practices and misleading fine print. And equal housing measures prohibit discrimination and ensure everyone is treated fairly regardless of factors like race and religion.
As you prepare to purchase a home or refinance a mortgage, it helps to know the mortgage laws you can count on. Here's a rundown of the most important laws that protect borrowers today:
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act, also known as RESPA, initially passed in 1975. The mortgage laws that make up this act require that lenders, mortgage brokers, and other businesses that offer home loans present borrowers with government-mandated disclosures that clearly define the costs of the real estate settlement process.
This act also prohibits kickbacks and regulates the use of impound accounts for property taxes and homeowners insurance. In fact, RESPA requires lenders to account for every dollar they collect and refund overcharges in a timely manner.
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act, or FCRA, protects borrowers from credit reporting errors. This act gives you the right to . Consumers also have the legal right to dispute incorrect information in their credit reports thanks to the FCRA, and credit bureaus must investigate quickly and delete inaccurate information brought to their attention.
You have the right to a free credit report if any of the following apply:
- A person or company has taken adverse action against you because of information in your credit report
- You are the victim of identity theft and place a fraud alert in your file
- Your file contains inaccurate information as a result of fraud
- You are on public assistance
- You are unemployed but expect to apply for employment within 60 days
The FCRA also governs the privacy of your credit report, including the fact that employers must ask you for consent before accessing a modified version of your credit report. You can also limit unsolicited pre-screened credit offers thanks to this law. And you have the right to freeze each of your credit reports to prevent anyone -- even you -- from opening new accounts in your name.
Truth in Lending Act (TILA)
The Truth in Lending Act was originally enacted in 1968, but the mortgage laws that make up this act have been amended several times since. Today's version of the act ensures that lenders disclose the cost of credit properly and honestly so consumers can make an informed decision on the credit products they choose to use.
For example, if a lender advertises an interest rate, the annual percentage rate (APR) must be disclosed as well. That number incorporates the cost of getting the loan into an interest rate, making easier to compare loans with different rates and costs.
TILA also aims to protect consumers against unfair credit billing and deceptive mortgage practices. This means limiting how high some adjustable rate loans can go during their terms. This act also imposes limitations on home equity lines of credit, or HELOCs, while providing minimum standards for most loans that use a home as collateral.
Related: What you need to know about TILA-RESPA mortgage disclosures
Fair Housing Act
Finally, the Fair Housing Act steps aims to protect the rights of everyone seeking homes. Under the act, it's illegal to discriminate against anyone in the market for housing. This covers anyone buying a home, renting a home, applying for a mortgage or seeking housing assistance.
The Fair Housing Act makes it illegal to discriminate against anyone based on race, color, national origin, sex, religion, familial status, or any disability. This means that a home seller cannot refuse to sell to or negotiate with anyone in these protected groups. Nor can they set different terms for individuals based on these factors.
While the Fair Housing Act applies to most types of housing, owner-occupied homes with four units or fewer and homes sold by owner are exempt. Houses operated by religious organizations and private clubs may also be exempt.
Fair treatment
As you take steps to purchase a home or refinance the mortgage on a property you already own, don't forget about the different mortgage laws that aim to protect borrowers against predatory lending practices, outright fraud, or discrimination.
However, one of the best ways to make sure that you're being treated fairly and getting the best mortgage available to you is to simply compare offers from several lenders. Most mortgage lenders don't discriminate, so getting multiple mortgage quotes adds a layer to the protection already provided by mortgage laws.
