Misdemeanors and Home Loans: How Criminal Records Impact Mortgage Approval

When homebuyers look for institutional financing to purchase their homes, several federal laws protect them from discriminatory treatment by credit lending institutions. The Fair Credit Reporting Act and Equal Credit Opportunity Act prohibit lenders and banks from discriminating against loan applicants. The Fair Credit Reporting Act limits credit-reporting agencies from reporting certain types of personal information and transactions. For loan applicants with a history of criminal misdemeanors, the federal government limits what types of information lenders can use when establishing eligibility.

In most states, felony charges involve more serious crimes and carry longer jail terms; misdemeanor charges carry jail terms of less than one year. All arrest records, including misdemeanor offenses, are public information. Generally, credit-reporting agencies may not report negative financial information after seven years, but there is no limit as to how long they can report criminal convictions.

Fair Housing Act

The federal Fair Housing Act governs most residential real estate transactions, including advertising, sales and financial activities. It prohibits lenders from discriminating against residential property loan applicants based on family status, mental or physical disability, national origin, gender, religion or race. Consumers who experience discrimination in violation of the Fair Housing Act can file complaints with the U.S. Department of Housing and Urban Development. The Fair Housing Act covers most residential housing transactions. Mortgage lenders who refuse to lend money to applicants based on discriminatory factors violate the act. Although the Fair Housing Act covers mortgage discrimination based on immutable characteristics or unchangeable traits, it does not prohibit lenders from discriminating against applicants based on their criminal histories.

Equal Credit Opportunity Act

The federal Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants based on race, origin, religion, color, gender, age, welfare status and marital status. Although the Equal Credit Opportunity Act prohibits lenders from discriminating against applicants based on these protected factors, it does not specifically prohibit lenders from using an applicant's misdemeanor history to deny her a loan or to impose higher loan interest rates based on criminal background information.

Summary of Federal Laws

Although the fair housing and equal credit opportunity laws limit lenders from discriminating against applicants based on protected factors, it does not prohibit them from using criminal information to deny them loans. Lenders may use felony or misdemeanor information to deny applicants loans. However, many states have passed legislation limiting lenders' rights to use negative misdemeanor information to deny loans to applicants.