October 26, 2011
Transparency in the lending process and informed borrowing are two of the most important issues related to the “front end” of FHA loans. Before you commit to buy, even before you turn in an FHA home loan application, it’s crucial to know what your rights as a borrower are and how those rights affect every step of the FHA loan process.
Did you know you’re entitled to an explanation as to why an FHA loan application was denied? According to the FHA official site, the Equal Credit Opportunity Act (ECOA) governs lender responsibilities in this area.
“If your application is denied, ECOA requires your lender or mortgage broker to give you a statement of the specific reasons why it denied your application or tell you how you can obtain such a statement. The notice will also tell you which federal agency to contact if you think the lender or mortgage broker has illegally discriminated against you.”
The anti-discrimination aspect of this ECOA rule is a major factor, but it’s not the only one. How can a borrower know what to work on so that he or she may become eligible for an FHA loan in the future? Borrowers should know the specific reasons why they are ineligible for an FHA mortgage.
When it comes to FHA loan applications denied for credit reasons, another federal law called the Fair Credit Reporting Act (FCRA) has a specific rule addressing that situation. FCRA requires a lender or mortgage broker that denies your loan application to tell you whether it based its decision on information contained in your credit report. If that information was a reason for the denial, the notice will tell you where you can get a free copy of the credit report.”
This is important for several reasons, including the borrower exercising his or her rights to dispute the information found in credit reports. Knowing all this can go a long way toward peace of mind in the FHA loan application process–fully understanding your rights as a borrower is just as important as knowing the interest rates and terms of a new home loan.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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