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Can a lender cancel a refinance deal in rescission period?

As per the Truth in Lending Act, homeowners have been offered a 3-day right of rescission on all refinance transactions. This offers you the chance to review the loan within 3 full business days and even cancel the deal in case you feel so. Even the lenders have the rights to cancel a refinance deal during the rescission period. Here are some reasons behind the cancellation of the deal by the lender.

  1. Disputes in credit reports
  2. When a home buyer applies for refinancing, the lender reviews his/her credit report. The lender checks the report thoroughly and makes sure that the homeowner has not obtained any new, undisclosed debt. If the lender finds some disputes in the credit report, then he/she has all the rights to rescind the deal.

  3. Discrepancy in the employment records
  4. Before offering you a loan, the lender checks your income documents, including the pay stubs. If the lender finds some discrepancies, he/she can cancel the agreement in that 3-day period.

  5. Low appraised value of the house
  6. The refinance loan amount is a certain percentage of the value of the property. In case the appraised value of the property is not high enough, the lender may not be interested to make the offer. In that case, lender may request you to borrow less or the lender may charge a high rate of interest.

  7. Mismatch in public records
  8. Sometimes, homeowners may not disclose the information on the purchase of a new house to the lender. However, lender can get to know about this information by verifying the public records. In such case, lender can cancel the deal.

As a homeowner, you need to have unblemished records. Otherwise, your refinance application may be rejected by the lender.

We are about to refinance and have already been approved. Now, I'm just awaiting the appraisal. The appraised value is lower than what we expected. But even then it is $12000 higher than what we are borrowing. Do we need to be worried that our refinance approval may be cancelled?

sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Smith,

Welcome to the forums.

Your refinance loan can be cancelled as the amount you borrow is a percentage of the property-value. So, if the appraised value isn't high enough, the lender may not be willing to offer you the loan. Or else, you may have to borrow less. The lender may even charge you a higher rate of interest.

Take Care

Like | Dislike | Share | Posted: Tue, 07/24/2007 - 04:27 | Post subject:

blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Smith,

Welcome to Mortgagefit discussion board.

After this new appraisal the refinance loan will be for what percentage of your property's value? If it is not going over the 80% mark then there is no major concerns which can result in cancellation of your refinance request. And many lenders will be willing to refinance for higher ltv ratios too.

But in Texas for instance a refinance cannot be for more than 80% ltv. So if you are in Texas, check what the refinance is going to be for and if it is crossing the 80% limit because of the lower appraisal you have received.

Thanks
Blue

Like | Dislike | Share | Posted: Tue, 07/24/2007 - 18:41 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If your appraised home value is lower than the refinance loan amount, the it is really a matter of concern. It will affect you more if you need extra cash from the refinance. This is because the lender will not be able to provide you with loan amount higher than your home value.

Like | Dislike | Share | Posted: Wed, 07/25/2007 - 05:22 | Post subject:

mike.shapiro's picture
mike.shapiro | Joined: May 4, 2007 09:51 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

"But in Texas for instance a refinance cannot be for more than 80% ltv. So if you are in Texas, check what the refinance is going to be for and if it is crossing the 80% limit because of the lower appraisal you have received. "

Wow I did not know that Blue. So lenders cannot loan more than 80% LTV. Is that only for refi purposes?

Like | Dislike | Share | Posted: Thu, 07/26/2007 - 12:25 | Post subject:

blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Mike,

It is known as the A6 law and is applicable for cash out refinances. In Texas a cash out refinance can be up to 80% of property value. I myself was not aware of it and came to know just few months back.

I came to know about it after I read this previous discussion on this topic: http://www.mortgagefit.com/texas/a6loan-law.html . Please take a look.

But in my previous post I did a mistake by stating that it was for refinances in general. This rule applies only for cash out.

Thanks
Blue

Like | Dislike | Share | Posted: Thu, 07/26/2007 - 12:48 | Post subject:

mike.shapiro's picture
mike.shapiro | Joined: May 4, 2007 09:51 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hmm. very interesting. Thanks for the link!

Like | Dislike | Share | Posted: Thu, 07/26/2007 - 12:55 | Post subject:

blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

:)

Like | Dislike | Share | Posted: Thu, 07/26/2007 - 13:18 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my appraisal is 100,000 less from last year when i refinanced due to the house next door short sale that they used for compts im now at 89% what can i do

Like | Dislike | Share | Posted: Wed, 04/01/2009 - 15:18 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I don't think you've much to do if your property is appraised 100,000 less from last year when you refinanced. Property values are declining in all parts of the country right now. If you are facing hardship in paying off the dues, immediately contact your lender and check out your options.

Like | Dislike | Share | Posted: Wed, 04/01/2009 - 21:39 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

maxwell, i'm not sure you actually had a question there. if your loan to value ratio is 89% now, and you are trying to refinance again, you can do so as long as you're not seeking any cash back. keep in mind that you'd likely have to bring cash to your closing to take care of associated costs.

Like | Dislike | Share | Posted: Thu, 04/02/2009 - 08:01 | Post subject:

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