Buying a home is typically one of the most expensive purchases you’ll be making in your lifetime. For many borrowers, it can be additionally stressful since they are not familiar with the mortgage process and what they should expect from related parties, mainly the lender and seller. They may be worried that they’ll be taken advantage of, making them even more apprehensive about buying a house.

Understanding Homebuyer Rights

As a potential homebuyer, it’s important you know that there are laws in put in place to protect your interests and to make sure you’re not taken advantage of. These laws clearly define what a borrower should expect when buying a home and applying for a mortgage, such as equal access to housing opportunities and accurate and readily available information about their home loans.

Fair Housing Act: Equal Opportunity for All

Equal access to rental housing and homeownership opportunities is the cornerstone of this nation’s federal housing policy. The Fair Housing Act prohibits discrimination and the intimidation of people in their homes. It covers virtually all housing in the United States and is enforced by the Department of Housing and Urban Development.

Under these laws, a consumer cannot be refused a loan, charged more for a loan, or offered less favorable terms based on race, color, national origin, religion, sex, familial status, or disability. Landlords who refuse to rent or sell to people based on these characteristics are violating federal law.

Real Estate Settlement Procedures Act (RESPA)

RESPA is about closing costs and settlement procedures. It requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process.Passed by Congress in 1974, RESPA initially fell under HUD’s jurisdiction, but the role was passed to the Consumer Financial Protection Bureau (CFPB) as of 2011.

The most recent RESPA Rule makes obtaining mortgage financing clearer and, ultimately, cheaper for consumers. The new rule requires that borrowers receive a standardized Loan Estimate (which replaced the previously used Good Faith Estimate as of October, 2015) within three days of submitting a mortgage application. This document facilitates shopping among settlement service providers and to improve disclosure of settlement costs and interest rate related terms. It clarifies the terms of your loan, such as the purpose—whether it’s a purchase or refinance—the type of loan, loan amount, interest rate, pre-payment penalties if any, etc.

RESPA also requires that lenders provide a Closing Disclosure (replacing the HUD-1 Settlement Statement) that helps borrowers determine if their actual closing costs are within established tolerance requirements. It must be given to the borrower three days before closing for them to go over the numbers and compare them to those in the Loan Estimate.

Borrowers Have Rights

Because a mortgage may be the largest and most important loan you get during your lifetime, you should be aware of certain rights before you enter into any loan agreement.

You have the right:

• to shop for the best loan for you and compare the charges of different mortgage brokers and lenders.
• to be informed about the total cost of your loan including the interest rate, points and other fees.
• to ask for a Loan Estimate of all loan and settlement charges before you agree to the loan and pay any fees.
• to know what fees are non-refundable if you decide to cancel the loan agreement.
• to ask your mortgage broker to explain exactly what the mortgage broker will do for you.
• to know how much the mortgage broker is getting paid by you and the lender for your loan.
• to ask questions about charges and loan terms that you do not understand.
• to a credit decision that is not based on your race, color, religion, national origin, sex, marital status, age, or whether any income is from public assistance.
• to know the reason in the case that your loan application was turned down.
• to ask for the HUD settlement cost booklet "Shopping for Your Home Loan."

RESPA requires lenders and mortgage brokers to give borrowers this booklet within three days of applying for a mortgage loan. This booklet will help them become familiar with the various stages of the home-buying process, including deciding whether you are ready to buy a home, and providing factors to consider in determining how much you can afford to spend. Readers will learn about the sales agreement, how to use a Good Faith Estimate to shop for the best loan for your situation, required settlement services to close the loan, and the HUD-1 Settlement Statement that you will receive at closing.

Predatory Lending

There has been enormous progress made in recent years to expand access to capital for previously underserved borrowers. Despite this progress, however, too many families are suffering today because of a growing incidence of abusive practices in a segment of the mortgage lending market. Predatory mortgage lendingpractices strip borrowers of home equity and threaten families with foreclosure, destabilizing the very communities that are beginning to enjoy the fruits of our nation's economic success.

In communities across America, people are losing their homes and their investments because of predatory lenders, appraisers, mortgage brokers and home improvement contractors who:

• Sell properties for much more than they are worth using false appraisals.
• Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
• Knowingly lend more money than a borrower can afford to repay.
• Charge high interest rates to borrowers based on their race or national origin and not on their credit history.
• Charge fees for unnecessary or nonexistent products and services.
• Pressure borrowers to accept higher-risk loans such as balloon loans, interest-only payments, and steep pre-payment penalties.
• Target vulnerable borrowers with cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
• "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
• Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.

If a deal to buy, repair, or refinance a house sounds too good to be true, it usually is! Predators may use the following tactics to convince you to do business with them:

• A lender or investor tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses.
• The house you are buying costs a lot more than other homes in the neighborhood, but isn't any bigger or better.
• You are asked to sign a sales contract or loan documents that are blank or contain information which is not true.
• You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not!
• The cost or loan terms at closing are not what you agreed to.
• You are told that refinancing can solve your credit or money problems.
• You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.

Entering into a loan agreement is a big step as well as expensive. It's helpful that you know all your homebuyer rights so you don't get taken advantage of.

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