Down Payments and Private Mortgage Insurance
When you purchase a home, some lenders require 20% of the purchase price as a down payment. However, many lenders now offer loans that require less than that—sometimes as little as 5% on conventional loans. If you can't make a 20% down payment, lenders usually require you to buy private mortgage insurance (PMI) to protect them in case you don't make your payments. When government-assisted programs like Federal Housing Administration (FHA), Veterans Administration (VA), or Rural Development Services are available, the down payment requirements may be substantially lower.
If PMI is required for your loan, ask what the total cost of the insurance will be; how much your monthly payment will be, including the PMI premium; and how long you will be required to pay PMI.
Lender Do's and Don'ts
Lenders must
- Consider reliable public assistance income the same as other income.
- Consider reliable income from part-time employment, Social Security, pensions, and annuities.
- Consider reliable alimony, child support, or separate maintenance payments, if you choose to tell them about it. A lender may ask you for proof that you receive this income consistently.
- Accept someone other than your spouse if a cosigner is needed. If you own the property with your spouse, he or she may be asked to sign documents allowing you to mortgage the property.
Lenders cannot
- Discourage you from applying for a mortgage or reject your application because of your race, national origin, religion, gender, marital status, age, or because you receive public assistance income.
- Consider your race, national origin, or gender, although you will be asked to disclose this information voluntarily to help federal agencies enforce antidiscrimination laws. A creditor may consider your immigration status and whether you have the right to remain in the country long enough to repay the debt.
- Impose different terms or conditions, such as a higher interest rate or larger down payment, on a loan based on your race, sex, or other prohibited factors.
- Consider the racial composition of the neighborhood where you want to live. This also applies when the property is being appraised.
- Ask about your plans for having a family; however, they can ask questions about expenses related to your dependents.
- Refuse to purchase a loan or set different terms or conditions for the loan purchase based on discriminatory factors.
- Require a cosigner if you meet their standards.
Do you have credit problems? Still shop, compare, and negotiate.
Don't assume that minor credit problems or difficulties stemming from unique circumstances like illness or temporary loss of income will limit your loan choices to high-cost lenders. If your credit report contains negative information that is accurate, but there are good reasons to trust that you will repay a loan, explain your situation to the lender or broker. If you cannot explain your credit problems, you will probably have to pay more than borrowers who have good credit histories.
But don't assume that the only way to get credit is to pay a high price. Ask how your credit history affects the price of your loan and what you can do to get a better price. Take the time to shop around and negotiate the best deal that you can. Credit problems or not, it's always a good idea to review your credit report for accuracy and completeness before you apply for a loan.
Mortgage Discrimination
Fair lending is required by law. The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, gender, marital status, age, whether all or part of the applicant's income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act. The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, gender, handicap, familial status, or national origin. Under these laws, you cannot be refused a loan based on these characteristics, nor be charged more for a loan or offered less favorable terms based on such characteristics.
If you think you've been discriminated against
- Complain to the lender. Sometimes you can persuade the lender to reconsider your application.
- Check with your state attorney general's office to see if the creditor violated state laws.
- Contact a local private fair housing group and report the violations to the appropriate government agency. If your mortgage application is denied, the lender must give you the name and address of the agency to contact.
For ECOA violations involving mortgage and consumer finance companies, file a complaint with the Federal Trade Commission (FTC) at https://www.ftccomplaintassistant.gov/ or (877) FTC-HELP (382-4357).
Federal Trade Commission (FTC), Consumer Response Center. (n.d.). Major purchases and investments. Buying a home: Down payments and private mortgage insurance. In Read up! How to be an informed consumer. Washington DC: U.S. Government Printing Office. Retrieved November 30, 2016, from the Texell website: https://www.texell.org