In the United States, there is a close relationship between homeowners and banks. The more information you have about your mortgage, the better off you’ll be in terms of negotiations and protection from financial unfairness. When it comes to your contract with a bank, there are certain laws that protect borrowers from unfair terms and make it more likely that they will get what they deserve. This article covers some laws that everyone should know before beginning their mortgage process.
In general, it is important for consumers to know what options are available before they enter into a contract with a lender or other financial institution because these loan agreements can be affected by state law, federal regulations, even something as simple as the language in the document itself. Consumers should be well aware of what they are signing, especially if they are working with a bank that is outside their city or state.
Truth in Lending Act (TILA) – Fair Credit Reporting Act (FCRA)
The Truth in Lending Act (TILA) is the federal law that requires banks to provide consumers with an estimate of how much their credit will cost before they apply for it. This includes the interest rate, application fees, monthly payments, and amount down, among other things. TILA also mandates that lenders provide an accurate description of your loan agreement.
Fair Credit Reporting Act (FCRA)
This act regulates the manner in which lenders and credit bureaus collect and report information about your financial history. The FCRA requires financial institutions to give you an accurate credit report that is free of errors. Banks are required to give you a copy of your report at least once every 12 months but may also provide you one without charge. They are also required to explain how the information has been collected, why they have provided certain information, how it will be used, whether the applicant has the right to correct or dispute any inaccurate data, and what steps they have taken to ensure that your identity is protected.
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) requires real estate settlements to be made in writing, including all disclosures, disclosures about the interest rate, amount of down payment, or other similar information required by TILA.
Home Mortgage Disclosure Act (HMDA)
Home Mortgage Disclosure Act (HMDA) requires lenders to provide the exact amount of credit extended to each borrower. A lender may also have to provide your financial information for any borrowers that are related to you, but only if they are related by blood or marriage.
Equal Credit Opportunity Act (ECOA)
Equal Credit Opportunity Act (ECOA) prohibits discrimination based on race, color, national origin, religion, sex, or marital status. ECOA also mandates that a lender consider a borrower’s credit history only after the borrower has been determined to be a good risk for the requested amount. The lender may not deny you credit based on your score alone.
Truth in Savings Act (TISA)
The Truth in Savings Act requires banks to give consumers an accurate estimate of the interest rates and finance charges they will be paying if they choose a loan product from one of its branches or online divisions. TISA also requires banks to give consumers an accurate estimate of the monthly payment they would receive on their loan. Be sure to check out your agreement for any penalties that may apply, including negative amortization. There are some pretty hefty penalties for early pay off of a home loan.
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