Can I Cancel My Mortgage Loan Application?

Applying for a mortgage loan is a significant financial undertaking. Life circumstances can change unexpectedly, leading applicants to reconsider their commitment. This may prompt a desire to withdraw an application before the loan is finalized. While canceling a mortgage application is generally possible, the process and financial implications depend on how far along the application is in the lending process.

Understanding Your Right to Cancel

Applicants have the right to cancel a mortgage loan application at various points before the loan is fully closed and funded. The process includes stages such as initial application submission, loan processing, underwriting, and commitment. The ability to cancel and the consequences vary depending on which stage the application has reached.

The right to cancel an application exists before the loan agreement is signed and finalized. If an applicant decides not to proceed after receiving a Loan Estimate, they can cancel without penalty. This is distinct from the right of rescission, which applies after certain types of loans have already closed. The Truth in Lending Act (TILA) grants borrowers a three-business-day “cooling-off” period to cancel specific transactions, such as refinancing a primary residence or obtaining a home equity loan or line of credit. This right does not apply to the purchase of a new home with a mortgage.

Steps to Cancel a Mortgage Application

Initiating the cancellation of a mortgage loan application begins with direct communication to the lender. Prompt action can help minimize the work the lender has already completed, which may reduce potential costs.

While an initial phone call can convey the intent to cancel, it is important to follow up with written communication. Sending an email or a formal letter creates a clear record of the cancellation request. This written record can be important for any future reference or to avoid misunderstandings. The cancellation request should include specific details to ensure it is processed correctly. Essential information includes the applicant’s full name(s), the unique loan application number, and the property address associated with the application.

After submitting the written request, it is advisable to ask the lender for a written confirmation of the cancellation. This confirmation serves as proof that the application has been formally withdrawn from their system. Applicants may also inquire about any process for the return or secure destruction of sensitive documents submitted during the application process. While lenders are obligated to protect personal information, understanding their procedures can provide additional assurance.

Costs Associated with Cancelling

Canceling a mortgage loan application can incur certain non-refundable fees, depending on the stage of the application and services already rendered. These fees compensate the lender or third-party service providers for work completed.

One common charge is an application fee, which covers the lender’s initial administrative and processing costs. This fee, which can range from $0 to $500, is typically non-refundable once the application has been submitted, even if the loan is not approved. Another fee often encountered is for the credit report. Lenders charge this fee to obtain the applicant’s credit history from credit bureaus. This cost, usually between $25 and $150, is generally non-refundable once the report has been pulled.

An appraisal fee is charged for the valuation of the property, which is a required step for most mortgage loans. If the appraisal has been completed, or even if the appraiser has been dispatched for an inspection, this fee, typically ranging from $300 to $550, is usually non-refundable. In some cases, a lender might charge a lock-in fee to guarantee a specific interest rate for a set period. If this fee was paid and the rate lock period has begun, it may be non-refundable, though policies can vary by lender. Reviewing the Loan Estimate (LE), a three-page form provided by the lender after applying, offers a detailed breakdown of estimated fees and can help applicants understand which costs are expected and their potential refundable status.