Obtaining a home loan, whether a purchase or refinance loan, can be a lot of work. It can take up to 30 days just to get an initial approval and that is after providing a mountain of paperwork. After spending time to get your loan approved you have an important decision to make. Do want to continue, accept the loan approval and close a mortgage loan with the lender? If not, you can decline and walk away.
Good Faith Estimate
Review the loan approval and good faith estimate. Double-check the interest rate, loan term, closing cost, fees and monthly payment to ensure they are in line with what you expected and what you need to meet your financial goals. Lenders advertise interest rates and programs but don’t always offer them on a loan approval. Your credit history, home value or other qualifying factors may make you ineligible for the special that was advertised. Don’t assume that a loan approval will include the loan terms you want. Even if you get the right interest rate, the lender may slide something else in, like a pre-payment penalty.
Requiring a loan application fee has become standard practice with some lenders. Additionally a lender may make you pay for the appraisal while your loan is in underwriting. If you decline the mortgage loan approval you will probably lose the money you spent. If you paid for the appraisal, you own it, so while it won’t be used for this loan you may be able to use it in the future.
Consider how declining the mortgage loan will affect your financial situation. If you see no obvious effect when getting a refinance loan by a reduction in monthly payment, paying off your loan sooner, consolidating debt or drastically reducing your interest rate, the loan is probably not beneficial anyway. Without a benefit there is no point in going forward because most loans have fees associated with them.
Obtaining a loan to purchase a home is a necessary step for most people, unless you won Powerball or a similar lottery, or Grandpa is feeling extra generous. Declining a loan approval to purchase a home can delay your closing. If you have to secure a loan through a new lender, you will have to start the application and approval process all over again. This can add weeks to your closing time frame. Make sure the sellers are willing to extend the closing date before you decline a loan approval. If they are unwilling to do so, you may want to close the loan and refinance at a later date so that you don’t risk the home being sold to someone else.
Declining a home loan can be a difficult choice to make. If you are on the fence about closing a loan with a lender or agreeing to the loan terms, you have until the very last minute to change your mind which, in the case of a purchase loan, is immediately prior to signing the loan documents. For a refinance loan, you can change your mind even after the documents are signed. Legally you have a three day right of rescission period, which means that after you sign the documents you have three business days to provide the lender a written notice that you do not want to close your loan and are rescinding your agreement.
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