ECOA and the Consideration of Income in the Loan Application

Table of Contents

When we apply for a loan, lenders evaluate our creditworthiness based on a variety of factors. One of these factors is our source of income. However, not all income is treated the same, especially under the Equal Credit Opportunity Act (ECOA).

What is ECOA?

ECOA (Equal Credit Opportunity Act): This is a federal law that prohibits discrimination in any aspect of a credit transaction based on certain factors.

Income that can be disregarded

Under ECOA, there are certain sources of income that a lender may choose not to consider when evaluating a loan application. A clear example of this is the «from parents» income (income from parents).

Why is this type of income disregarded? In many cases, a parent's income may be considered inconsistent or unstable. The lender can choose not to take that income into account without violating ECOA.

Conclusion

It is essential to understand how our creditworthiness is assessed and what considerations a lender has when doing so. Under ECOA, disregarding income from parents is an accepted practice, as it is perceived as a potentially unstable source of income.

Legal and Tax Disclaimer

Readers are advised that the content presented in this blog is for informational purposes only and should not be construed as legal or tax advice. The articles and information provided here are written from the perspective of a real estate agent affiliated with Luxury Collective, and do not represent legal or tax advice.

As the author, I am a licensed real estate professional under Luxury Collective, with DRE Brokerage License Number: #02230789. However, it is important to note that my expertise is in the real estate field, and not in legal or tax matters. The insights and opinions shared on this blog are based on my experiences and knowledge in the real estate industry and should be considered general guidance, rather than definitive legal or tax advice.

For specific legal or tax concerns relating to any real estate transactions or investments, readers are strongly encouraged to consult with a qualified attorney or tax advisor who can provide tailored advice based on your individual circumstances and the latest legal and regulatory requirements.

The information on this blog is provided “as is” without warranty of any kind, and I, along with Luxury Collective and its affiliates, disclaim all liability for any loss, damage or misunderstanding arising from the use of the information contained herein.