What is a Fair Loan?  

What is a fair mortgage loan? In simple terms, a fair loan has five characteristics:  

-          The rate should reflect the real risks involved in making the loan — rather than being artificially inflated. If you have good credit and an appropriately sized down payment, under normal circumstances you should be able to receive a prime loan. If you do not qualify for a prime loan, but still have quite good credit, you should not be paying a rate many points above prime.  

-          Fees paid in connection with the loan should have prices comparable to those offered by other providers, and they should provide compensation for real services — not for services the borrower does not need or want, such as certain types of insurance that do not provide you, the borrower, with clear benefits.  

-          The loan should not have features, such as adjustable rates or pre-payment penalties, that could cause a consumer hardship in the future, unless these features have clear benefits for you the borrower, and unless you clearly understand and want these features.  

-          You should be able to afford the loan with your current income, unless you are certain that your income will increase in the future — in which case you should be able to afford the loan with the future income that you are certain about. In general, you can afford a loan if you are not paying more than 35% of your total income on housing payments, including your taxes and insurance.  

-          You, the borrower, should fully and clearly understand the loan and all its terms and provisions.   But how do you know when the rate on a loan really reflects you risk? And how do you know whether the fees a borrower offers are comparable to those of other service providers? The following tips can help you answer these questions, and help you find a lender who will offer you a fair loan.  

Things to Keep in Mind as You Shop For a Loan  

Strongly consider a fixed-rate 30-year mortgage. This type of loan has been tried and tested. It’s not the best loan for everyone, but it meets the needs of most borrowers very well, and it’s a very safe type of loan.  

Know your credit scores: You can get a free credit report from each of the three main credit rating agencies at www.AnnualCreditReport.com. These reports do not give you your credit scores, which you must pay for. Getting your reports and scores is a good investment of time and money. It is not true that your credit score will decrease if you request a score yourself.  

Make sure you’re getting the best priced-loan you qualify for, given your credit scores and the amount of your down payment: In the last ten years, tens of thousands of borrowers would have qualified for an inexpensive prime loan were sold a costly subprime loan instead. Don’t assume that you won’t qualify for a prime loan, especially if you have good credit.   If you have poor credit, you can improve it in a relatively short period of time. Consider working with a good loan counselor, who can help you identify the steps you need to take to increase your credit score.  

If you really don’t qualify for a prime loan and you need or want to go ahead with getting a mortgage, be very careful about the institution you borrow from. In the past, it was much more common for subprime loans to be unfairly priced than prime loans, so you should be very careful in dealing with institutions that are willing offer you a subprime loan.  

Make full use of new Federal disclosure forms: New Federal regulations require lenders to provide much more information about your loan than they used to do on the Good Faith Estimate and the Settlement Statement. (The new regulations went into affect on January 1st, 2010.) You can find out more about these forms and how to use them here.  

In all cases, shop around, and don’t automatically accept the first loan you are offered.  

Resources to Help You Find a Fair Loan  

The Fair Mortgage Collaborative has created a subsidiary, Fair Loan Certification, which certifies organizations that meet the Fair Mortgage Collaborative’s standards. Visit Fair Loan Certification’s website for more information by clicking here.

What is a Fair Loan?  

What is a fair mortgage loan? In simple terms, a fair loan has five characteristics:  

-          The rate should reflect the real risks involved in making the loan — rather than being artificially inflated. If you have good credit and an appropriately sized down payment, under normal circumstances you should be able to receive a prime loan. If you do not qualify for a prime loan, but still have quite good credit, you should not be paying a rate many points above prime.  

-          Fees paid in connection with the loan should have prices comparable to those offered by other providers, and they should provide compensation for real services — not for services the borrower does not need or want, such as certain types of insurance that do not provide you, the borrower, with clear benefits.  

-          The loan should not have features, such as adjustable rates or pre-payment penalties, that could cause a consumer hardship in the future, unless these features have clear benefits for you the borrower, and unless you clearly understand and want these features.  

-          You should be able to afford the loan with your current income, unless you are certain that your income will increase in the future — in which case you should be able to afford the loan with the future income that you are certain about. In general, you can afford a loan if you are not paying more than 35% of your total income on housing payments, including your taxes and insurance.  

-          You, the borrower, should fully and clearly understand the loan and all its terms and provisions.   But how do you know when the rate on a loan really reflects you risk? And how do you know whether the fees a borrower offers are comparable to those of other service providers? The following tips can help you answer these questions, and help you find a lender who will offer you a fair loan.  

Things to Keep in Mind as You Shop For a Loan  

Strongly consider a fixed-rate 30-year mortgage. This type of loan has been tried and tested. It’s not the best loan for everyone, but it meets the needs of most borrowers very well, and it’s a very safe type of loan.  

Know your credit scores: You can get a free credit report from each of the three main credit rating agencies at www.AnnualCreditReport.com. These reports do not give you your credit scores, which you must pay for. Getting your reports and scores is a good investment of time and money. It is not true that your credit score will decrease if you request a score yourself.  

Make sure you’re getting the best priced-loan you qualify for, given your credit scores and the amount of your down payment: In the last ten years, tens of thousands of borrowers would have qualified for an inexpensive prime loan were sold a costly subprime loan instead. Don’t assume that you won’t qualify for a prime loan, especially if you have good credit.   If you have poor credit, you can improve it in a relatively short period of time. Consider working with a good loan counselor, who can help you identify the steps you need to take to increase your credit score.  

If you really don’t qualify for a prime loan and you need or want to go ahead with getting a mortgage, be very careful about the institution you borrow from. In the past, it was much more common for subprime loans to be unfairly priced than prime loans, so you should be very careful in dealing with institutions that are willing offer you a subprime loan.  

Make full use of new Federal disclosure forms: New Federal regulations require lenders to provide much more information about your loan than they used to do on the Good Faith Estimate and the Settlement Statement. (The new regulations went into affect on January 1st, 2010.) You can find out more about these forms and how to use them here.  

In all cases, shop around, and don’t automatically accept the first loan you are offered.  

Resources to Help You Find a Fair Loan  

The Fair Mortgage Collaborative has created a subsidiary, Fair Loan Certification, which certifies organizations that meet the Fair Mortgage Collaborative’s standards. Visit Fair Loan Certification’s website for more information by clicking here.