If you are considering applying for a mortgage, car loan, or other type of loan, you need to know what the lender will consider when deciding whether to approve the request. It should come as no surprise that all lenders want to see that you have a job, sufficient income, and that you pay your bills on time.
However, many people are unclear on what lenders do and do not look at when evaluating an application. Here are four things lenders cannot take into consideration when you apply for a loan.
Race and religion
Discrimination based on your race or religion is forbidden by both the Equal Credit Opportunity Act, or ECOA, and the Fair Housing Act. These laws also prohibit discrimination based on your national origin, so those born outside the United States have the same opportunities to borrow as any other citizen.
Also specifically prohibited is the denial of credit because the applicant received income from any public assistance program. This includes rental assistance programs, food assistance, and child care subsidies, just to name a few. However, unemployment compensation can be prohibitive, since lenders are allowed to consider your employment status.
As long as the borrower is otherwise qualified for a loan, participation in any public assistance programs is not a permissible reason to deny a loan.
Sex and marital status
You have the same loan opportunities whether you are male or female, and whether you are single, married, or divorced. However, depending on the state you live in, your spouse's assets can be considered when you apply for a loan.
If you live in a "community property" state (of which there are nine), all debts and assets are considered to be the property of both partners. So if your spouse has a significant amount of debt, that could be taken into account in the loan application process, even if you aren't applying for a joint loan account.
However, the lender cannot ask you if you are "married, single, divorced, or widowed." You can only be asked if you are married, unmarried, or separated.
This is probably the most popular misconception, particularly when it comes to mortgages. Specifically, many people are under the impression that a very elderly person can't get a 30-year mortgage for the obvious reason that he or she is unlikely to outlive the loan.
Whether people getting mortgages in their 80s or older is a good idea is another discussion, but the notion that they can't is 100% false. The ECOA prohibits any age discrimination in any aspect of a credit transaction, as long as the person is over 18.
On the younger side, creditors and lenders are not allowed to offer different loan opportunities to certain age groups. For instance, a furniture store cannot offer to finance as much as $2,500 for borrowers up to 29 years old, and as much as $5,000 for borrowers over age 30.
But, beware of these items
There are a few pieces of information that are not a part of your credit score, but that lenders are allowed to consider.
Your salary is a perfect example. It's entirely possible to make minimum wage and have a fantastic credit score, but lenders can deny your application based on this information.
Lesser-known items in this category include child support obligations, which are ignored by the FICO credit scoring model but can be taken into account when evaluating your ability to repay a loan. Also allowed for consideration are evictions and where your savings came from (especially for mortgages).
If one of these apply to you, go ahead and get your loan
If you have been putting off getting a loan due to one of these factors that lenders don't consider, then don't let it stop you anymore! If you are 85 and want to borrow against your house, go for it. If you are on a rental assistance program, but have sufficient credit and income to justify a car loan, by all means apply for one if you need and can afford reliable transportation.
The bottom line is that knowing your rights will put you in a much better position to be prepared and confident throughout the entire application process.
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