What Is A Rescission Period?

Written by Posted On Thursday, 18 August 2022 00:00

When you buy a home and go to the settlement table to sign your papers, the papers are returned to the lender for a final review. This review means the lender wants to make sure the settlement agent followed the lender's instructions. Once that review is made and determined the instructions were properly followed, the loan is funded. This typically happens on the same day. You go to the settlement, sign your papers and later that day you're officially a homeowner. Easy pease. At least in terms of signing documents and funding the loan. With a refinance, the process is a little different.

When refinancing, there is a three business day waiting period before the loan funds. Why the wait time? The thinking is that you may decide you don't want the loan after all. In such a case, you inform the lender in writing that you wish to cancel. There is no qualified reason to cancel a refinance. You can rescind because you just got a bad haircut. Doesn't matter the reason. Your loan is canceled and you stay on your original note.

Some lenders provide a form for you to fill out but you can also rescind just with a written letter or email. Note the three day rescission period is for three business days. The rescission period starts the day after you sign your papers. You sign on a Monday, the rescission period begins on a Tuesday and lasts up until Thursday at midnight.

If papers were signed on a Thursday, the rescission period starts on Friday. Rescission periods don't count Sundays or federal holidays so the rescission period counts Saturday, Monday and up to Tuesday at midnight. Note here the rescission period can't be waived by your or anyone else. It's a mandatory waiting period. It's sort of an antiquated 'cooling off' period to make sure you really, really want to take out the new loan. 

The three day period applies to a refinance, cash out refinance, a home equity loan or HELOC. Note also the rescission period applies to new loans with a new lender, not the current lien holder and applies only to a primary residence. The rescission period does not apply to an investment property or second home.

Rescissions aren't very common but they do occur. Most borrowers do their due diligence ahead of time and are confident going into the transaction is in their best interest. However, if someone does change their mind, for whatever reason, the right to cancel the loan exists.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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