It is sad and disappointing that we need to cover this topic in the 21st century but unfortunately lending discrimination remains a challenge for many mortgage borrowers. Studies show that certain racial and ethnic groups are declined at a higher rate when they apply for a loan or pay more expensive terms.
In short, although mortgage lenders are not allowed to discriminate on the basis of race, ethnicity, age, gender, sexual orientation or marital status, it still happens. Below, we outline several steps you can take to avoid lending discrimination when you apply for a mortgage. Following these pointers helps to ensure that you are treated fairly and objectively as an applicant.
It is important to highlight that you can get a mortgage without ever physically meeting your lender. In fact, for many borrowers, the mortgage process is conducted entirely online and over the phone. In other words, you can get approved for your loan without your lender having any idea what you look like.
Additionally, when you shop for a mortgage online, no one knows your race or any other information about you. This approach enables you to anonymously compare loan terms from the comfort of your own home. Not only does shopping and applying for a mortgage online remove race from the process but you are more likely to find the lowest rate and fees, which can save you a significant amount of money.
The more lenders you contact, the more likely you are to find one that provides a high level of customer service and integrity. Additionally, studies show that the more lenders you shop, the more money you save on your mortgage. Simply put, speaking with several lenders enables you to identify the best mortgage terms and find a lender you are comfortable working with.
It is important to highlight that you can shop for a mortgage without providing any demographic information. You can compare lenders and mortgage terms online (see the table below), via email or over the phone without indicating your race or gender. If a lender requests this information to provide you a mortgage quote -- which is highly unlikely and not legal -- simply move on and shop another lender.
Additionally, we recommend that you agree to your loan terms, including your mortgage rate and closing costs, before you submit your loan application to the lender you choose. With this approach your race is not known to the lender and should have absolutely no impact on your mortgage terms. Your loan terms are already set before you decide if you want to include demographic information on your loan application.
We recommend that you contact several lenders in the table below to review their loan terms, application process and qualification guidelines. Contacting lenders is free and does not affect your credit.View All Lenders
The only time you are requested to provide information about your race or ethnicity when you apply for a mortgage is on the demographic information section of your loan application. Providing this information, however, is voluntary. If you do not wish to disclose your race or ethnicity, you are not required to do so. If you do not fill out the demographic information on your application the lender is supposed to do it based on other information but this may be challenging if you never meet in-person.
Although lenders are not permitted to discriminate based on the factors outlined above, they are allowed to treat applicants differently using other criteria including your credit score, type of employment and property type. For example, depending on the loan program, applicants with lower credit scores may be charged a higher interest rate. It is also more challenging to qualify for a mortgage if you are self-employed or if you are financing a condominium as compared to a single family residence.
The best way to address these issues is to: a) make sure your credit is in good shape; and, b) understand the qualification guidelines that apply to your specific situation upfront. That way there are no surprises after you submit your application.
If you feel that you have experience lender discrimination your best course of action is to immediately stop working with the lender. Keep in mind that for a home purchase loan you can cancel your mortgage any time before you sign loan documents and for a refinance you can cancel up to three days after you sign loan documents.
Your next step is to contact the Consumer Financial Protection Bureau (CFPB) and your state attorney general’s office to file a complaint. These government organizations offer free resources and can look into claims of lending discrimination on your behalf.
In summary, with the right information and approach you can avoid lending discrimination. Following the steps outlined above can help to make the mortgage process more fair and also save you money.
Use our free mortgage quote service to compare offers from multiple leading lenders. This easy-to-use and no obligation service helps you find the lender and loan that are right for you.
Bartlett, Robert. Morse, Adair. Stanton, Richard. Wallace, Nancy. “Consumer-Lending Discrimination in the FinTech Era.” Haas School of Business UC Berkeley & NBER, November 2019. Web.
McManus, Doug. Liu, Liyi. Yi, Mingzhe. "Why Are Consumers Leaving Money On The Table?" Freddie Mac, April 17 2018. Web.« Return to Q&A Home About the author