With terms as long as 30 years, mortgages require a significant financial commitment and ensured sustainable income. This is usually a sign of stability, foresight, and an investment in the future – but sometimes disaster can strike.
Whether it’s a family emergency or an unexpected financial hiccup, prospective homebuyers may find themselves in the unfortunate situation of backing out of their mortgage. In this article, we’ll cover the best ways to withdraw from your mortgage, how to do so after closing, and more.
What are the Consequences of Backing Out of a Mortgage?
Even if your mind is already set, it’s important to understand the potential consequences of withdrawing from a mortgage. The short version: it depends on how far you are in the mortgage process.
Let’s take a look at two examples to better understand this concept:
- Example 1: you agree to a mortgage, but shortly after a family or financial emergency puts your homeownership goals on hold. Since it’s so early in the mortgage process, your lender may allow you to walk away penalty-free. Of course, every lender is different and this will ultimately depend on your unique situation.
- Example 2: you agree to a mortgage and need to back out several weeks into the process. Now that your lender and other parties are involved, you still may need to pay certain costs and could even forfeit on deposits like earnest money.
Depending on when you back out of a mortgage, any of the following could apply to your experience:
- Loss of earnest money
- Damages to credit score
- Legal consequences
- Impact on future homebuying
Remember: always work with a licensed professional for an ideal mortgage process. Find a Total Mortgage branch near you to learn more about the specifics of backing out of a mortgage.
How to Back Out of a Mortgage Before Closing
Now that we’ve covered some of the consequences, let’s learn how to back away from a mortgage before closing.
First, it’s important to recognize that the process of canceling a mortgage is a delicate one. Doing so successfully requires a paper trail of money issues, a sturdy contract, and a good relationship with your lender.
The best way to back out of a mortgage is to do so early. The average mortgage loan takes about 21-30 days to close (less than 21 days with Total Mortgage). And once you close, you are pretty much obligated to pay off the entire loan.
With that said, backing out of a mortgage before closing is almost always ideal. The caveat, however, is that the lender is typically not required to refund any upfront costs from processing the mortgage—that money will most likely be lost.
Some good justifications to back out of a mortgage before closing include:
- A low property appraisal from your lender or an increased mortgage rate
- Problems with the home inspection (a common contingency in contracts)
- Issues with the roof, foundation, electrical, heating, plumbing, electrical, etc. and the seller refuses to make repairs
In the case of a home inspection, many lenders actually require satisfactory results before approving a loan – making it very possible for them to support your decision to cancel your mortgage pre-closing.
How to Back Out of a Mortgage After Closing
Because your money is effectively “tied up” in your home after closing, it can be much more complicated to back out of a mortgage. Along with the consequences previously discussed, a post-close withdrawal may even come to legal action – but with the right argument, your goals could still be possible.
Let’s break down the complications of backing out after closing – and what you can do to help your cause.
When you withdraw from an accepted offer after closing, the seller of a house may have legal grounds to sue you for “specific performance” according to your contract. However, buyers are rarely ordered to purchase a home they don’t want. Instead, you will probably need to pay penalties and damages for the seller’s lost profits when they took the house off the market and tied it up for so long under a contract.
If you find yourself in a legal battle, be sure to have a strong, clearly-documented reason for backing out. Reasons such as “poor timing” or “lack of communication” are too vague and would be difficult to prove in court. When it comes down to it, your contract is the best place to look for reasons. Some of the best arguments include:
- Job loss
- A new inability to qualify for a mortgage
- A buyer’s failure to sell the old home
- Undisclosed key flaws with a home or unpermitted work
- Inaccurately presented property boundary lines
- Undisclosed easements and mechanic’s liens
Refinanced mortgages are an exception here. If you refinance your home, the Truth in Lending Act grants you the right of rescission – permitting you to decline the loan for up to three business days after you sign a closing document. Note: This exception only applies to primary residences.
Enjoy an Easy Loan Process with Total Mortgage
With Total Mortgage, loan experts across the country are standing by to offer a transparent and realistic home-buying experience. Find a location near you and meet with a loan expert to discuss your unique situation. Whether you’re looking to back out of a mortgage or need help getting a new one, Total Mortgage is here to help.
Source: totalmortgage.com