When comparing your home financing options, it may be easy to feel overwhelmed by the amount of information you can encounter. There are times when that feeling may cause confusion, and you might wind up signing contracts or agreements where you weren’t 100% clear on the details. If this happens, remember that you may have the right to terminate various agreements and relationships as you move through the homebuying process. The rules that apply to your situation may vary depending on your state’s laws and regulations.
Certain agreements will come with cancellation fees and penalties, but these charges may be insignificant in comparison to the cost or emotional anguish of getting stuck with a home you don’t want. Your partners throughout the home buying process should always let you know before you reach a point of no return.
Let’s look at a few of the most common relationships you’ll enter and your options for taking a step back.
Sometimes people just don’t work well together. If you find yourself in this situation with your real estate agent or team, you may want to cut ties before you purchase a home.
Your buyer’s agreement is usually binding for a set period. However, most of these agreements contain language that will allow you to terminate with a letter of cancellation.
Your search and payment agreement should include options for either you or the realtor to terminate. Read through your agreement and call your brokerage/agency. You’ll likely have the option to either switch agents or cancel the agreement altogether.
Your ability to cancel may depend on the type of agreement you enter, although you should always review your specific agreement:
Understanding the components of a mortgage agreement, application, and the process for termination can help you navigate the complex world of home financing.
By staying informed and communicating openly with your lender, you can try to arrive at a solution that works for your unique situation. It’s also important to do further research to become familiar with what state laws and regulations allow for in the area where you live.
If you need to cancel a pending mortgage application, call your loan officer or broker immediately. You may have a three-day window to cancel the application and recover any fees paid.
Tell the lender you want to cancel the pending application and provide a reason. Explaining the situation will help the lender understand any future needs.
Next, go through your application with your lender. Typically, you may get refunds of certain fees, such as credit check and appraisal fees. Other fees, such as application processing and rate lock-in fees, are usually non-refundable. You may have to pay a penalty for cancelling a mortgage application.
It is likely that your lender will be required to provide confirmation of cancellation over the phone or in person and will also mail confirmation. Keep all cancellation documents just in case you need them in the future.
A mortgage loan agreement is a legally binding document that outlines terms and conditions of a mortgage loan between a borrower and a lender. This agreement is a crucial part of the home financing process as it establishes the rights and responsibilities of both parties involved.
There may be various reasons why a borrower might want to terminate their mortgage agreement, including:
If you need to terminate a mortgage agreement and state laws allow for you do so, you should follow these steps:
Buyers may get excited about the prospect of purchasing a home and put in an offer on the first house they like. However, once they’ve had more time to reflect, they may decide it isn’t the right house for them after all.
At that point, the next step is terminating their contract. Here are some guidelines and possible repercussions from walking away from the purchase of a home after you’ve signed a home purchase contract.
Keep in mind that anytime you deal with a legal document, you may want to contact an attorney to determine your rights under the contract and help you understand what state laws and regulations may apply to your situation.
Most contracts contain several contingencies that allow you to walk away from the contract under certain conditions. Designed to limit the consequences for both parties, these contingencies are included at the start of the contract and agreed upon by both the buyer and seller. The most common contingencies are for:
Once the time limit has expired on the contingencies, you may still be able to walk away from the house right up until closing, although you may lose your deposit. This is called liquidated damages. The seller could potentially sue you for specific performance, which means that you would be required to complete the contract.
Terminating a contract for the purchase of a home is a serious decision that should not be made lightly. Although walking away may be possible, it’s far better to use due diligence to understand the home-buying process, research your desired property, and think objectively about your wants and needs before you sign a contract so you can avoid “buyer’s remorse.” After all, your goal is to buy a new house to live in — not to walk away from.
If you haven’t signed these agreements yet, you’re in a great place. When entering these relationships, always ask for an option to be released from your contract if it’s not a good fit. Stick with partners who are willing to discuss these release options.
If you feel that you must halt the purchase of a property, the best time to do so is while contingency timelines and agreements are still in effect. To protect yourself, understand what contingencies are in place and when they will be released. If you decide to walk away after those deadlines, consult with an attorney who can help you explore what options your state’s laws and regulations allow for about the best course of action.
Check out the mortgage glossary from Discover® Home Loans for definitions of commonly used home financing terminology.
Please note: Discover Home Loans offers a home equity loan product but does not offer home purchase financing options.
The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.
