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Backing out before closing?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 25th Feb, 2008 10:27am
Taking out a mortgage is one of the biggest possible decisions of one’s life. There are various factors which you need to consider and even check out your affordability. However, what if an emergency arises just before the mortgage closing and you start thinking “can I back out of a home purchase before closing"? Let’s take a look as to what you may face:


Are you bound by contract before closing?


Well, unless you sign the closing documents, you’re not bound by any kind of contract. So, it is quite easy to call up your lender and let him know that you won’t go ahead with the deal.



    What are the main reasons for canceling the deal?


    Here are some of the reasons which normally lead to cancellation of mortgage deals before closing:


  • If anything changed on your approval with the lender, then you may cancel the mortgage deal.

  • If the seller has misled you regarding the property, then the deal can be canceled.

  • If you have a contingency for the inspection and the inspection was bad, then you may cancel the deal.

  • However, developing a cold feet or losing interest in home buying won’t be considered as reasons for canceling the deal.


    What can happen if you cancel the mortgage deal?



    Here are some consequences that you may face if you cancel the mortgage deal:


  • You may lose the earnest money deposit.

  • If you have engaged a legal counsel, then you may be billed for the work done.

  • If you were working with a realtor, then you may be billed for his/her services as well.



  • It should be noted here that when you accept the purchase contract, the seller loses the right to market the property or accept other purchase contracts. So, if you’re thinking “can I back out of a home purchase before closing", then you should also keep the consequences in mind.


    However, under the Truth-In-Lending Act, a borrower has the right (Right of Rescission) to withdraw from the deal within 3 days after closing.
Posted on: 25th Feb, 2008 10:27 am
Hello, I was wondering what a person has to do to back out of a loan before closing. We put earnest money down and signed papers, but do not clos until next month. I doubt we will back out but some things have come up and just wanted to know where I stood.
Thanks, Scott
Hi Guest,

You can definitely back out from your loan transaction prior to closing. However, once you do so, you will not be compensated for any money you've paid out to the lender.

Thanks
Posted on: 20th Oct, 2009 11:30 pm
it's a pretty good reason, but i agree that you better not expect to get any money back - from bank or seller...and that probably includes your earnest money deposit. you'd better fight for it. better that you not back out, but advise your lender and see if they'll subsequently deny the loan request. that way, you'll stand a better chance of getting a deposit back.
Posted on: 23rd Oct, 2009 06:04 pm
want to buy house but want to change mortgage brockers to someone we know better. we need to know if the credit union we started with would charge a fee for starting our paper work but being cancled before closing
Posted on: 29th May, 2010 12:09 am
As far as I know, you will be able to change the mortgage companies but as you would be canceling the paperwork just prior to the closing, I guess the credit union may charge you fees. You should get in touch with your credit union and negotiate with them in this regard.
Posted on: 31st May, 2010 12:06 am
My husband and I decided to buy our first home a couple months ago. After looking for a while we found one. Since we were pre-approved for a mortgage it was fairly easy getting the ball rolling. The sellers accepted our offer, (which included them paying for a termite inspection) and we set a closing date. In that time frame my husband lost his job and had to seek new employment. This changed our loan approval and the deal fell through. Now the seller is wanting the earnest money, money for the termite inspection, and the abstract. Our real estate agent said the earnest money is ours but since the seller is a lawyer she is worried he might sue us for the rest. Can he do that? We didn't back out of the sale, it fell through due to no fault of ours.
Posted on: 26th Jul, 2010 06:36 pm
Anyone can sue anyone else at any time for any reason - that doesn't mean that the lawsuit will be successful, however. You need to be aware that the lawyer/seller is probably simply trying to scare you into paying more than you ought to pay. If you were denied your loan due to your husband's job situation, you ought to get your earnest money back. The rest of the money is up in the air, but I suspect you won't have to be responsible for that either (simply my opinion, and not a statement based on legal knowledge, mind you).
Posted on: 31st Jul, 2010 08:03 am
if the points for a loan that I requested have since dropped whereas the cost of the interest rate is now $2,000 less than I locked, can I cancel the loan? any costs or fees that I may incur? :)
Posted on: 21st Sep, 2011 05:04 pm
Hi Mike,

You can cancel the locked rates. However, you may lose the amount that you may have paid for rate lock. The lender may not return that price to you.

Thanks
Posted on: 21st Sep, 2011 09:43 pm
we have put down a deposit on the home but are loan has not been all the way approved yet but now not sure if we want it can we back out and get are money back we have paid for an apprasial on the home thanks
Posted on: 05th Jan, 2012 12:33 am
Hi nicole,

You should contact your lender and inform him that you want to back out from the deal. It will be the lender's discretion whether or not he will refund the money you've paid him.

Thanks
Posted on: 05th Jan, 2012 11:02 pm
hi we are in the process of buying a home its in escrow we applied for 2 credit cards but was declined will are house loan still go through
Posted on: 06th Jan, 2012 04:54 pm
Hi bre,

When you had already applied for the house loan, you shouldn't have taken the risk of applying for credit cards. You could have applied for credit cards after the loan closing. There is a still a chance that you may qualify for the loan as your application for credit cards have been declined.

Thanks
Posted on: 08th Jan, 2012 11:01 pm
The City forced us to cut down a large diseased dead tree which the buyers were fine with, but in so doing the arborist had to remove two smaller adjacent trees because they shared the same root system. The buyers are planning to tear down the house and rebuild and actually we spared them the huge expense of cutting down the tree 8 days before closing. Can they legally back out of the sale. They put down $100,000 in ernest money.
Posted on: 23rd May, 2012 10:33 pm
Hi Anne!

Welcome to forums!

If the sale hasn't yet taken place, then the buyers may back out of the sale.

Sussane
Posted on: 24th May, 2012 01:29 am
A buyer signed a contract on our house. He was preapproved financially. It was contig. upon inspection. Inspection went great. Appraisal went above asking price. The issue of flood insurance came up. We have never had flood insurace required so this surprised us. We had a flood cert. done on the lot. The surveyer forgot to list the BFE for the flood Cert. So the insurance quotes came back high. We had a second Cert done with a Base Flood Elevation done. That came back with a low risk flood policy of under 400.00 per year. When the buyer first caught word of the flood requirement he agreeded to have some flood insurance. He later changed his mind and wants to walk. We told him we are going to file a LOMA on the lot to free it from insurance at all. He wanted a for sure on the LOMA. When we called FEMA they told us if our numbers came back above Base Flood Elevation we would get the LOMA. The buyer has decided to walk . Is he aloud to walk?
Posted on: 26th Aug, 2012 11:06 am
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