When you first made an offer to buy a home both you and the seller signed a contract that bound the agreement. As part of that agreement, you provided an earnest money deposit. As long as you performed as described in the contract, when you go to the closing table, your earnest money deposit was credited to you. If you didn’t do what you were supposed to do, you may have lost your earnest money in addition to losing the home entirely.
There are clauses in sales contracts when veterans use their VA home loan entitlement to buy and finance a home that allow buyers to cancel the contract and get their earnest money back. Typically such allowances apply to a property inspection that turned up something bad or the property didn’t appraise high enough. These exceptions are laid out in the contract which you and the seller agreed to. But what you can’t do is simply cancel the transaction because you changed your mind. At least not without losing your earnest money. Say for example you got an extreme case of buyer’s remorse and five days before the closing you changed your mind. Not only would you lose your earnest money but the seller might take legal action to get you to honor the agreement.
But with a VA refinance, you can in fact change your mind. Even after you’ve already signed your closing papers.
What Is a VA Rescission?
A VA rescission occurs when you decide you no longer want the refinanced VA loan. There is a three day rescission period that applies allowing you time to reflect on your decision to refinance your loan and lets you out of the transaction entirely for no other reason than the wind blew from the north. Without penalty, you can cancel the entire affair.
The three day rescission period is three business days Monday through Saturday and does not include Sunday nor a holiday. You attend your closing, sign your closing papers and VA loan disclosures but your loan will not fund that day but when the rescission period ends.
Why a VA Rescission?
VA rescissions are rare and much more so than they were say 10 years ago. The three day “cooling off” period is federal law and part of the Truth in Lending Act. To thwart fast-talking loan officers and helping borrowers avoid a bad decision, a three day period was put into place.
Today however, there are so many upfront loan disclosures and notifications provided that the veteran has the opportunity to cancel at any time during the loan approval process without penalty. The veteran is under no obligation to pay for any third party services associated with the loan regardless if those services have already been provided. If you tried to cancel without reason on a sales contract, you lose your deposit and the house. With a rescission, you still have time to decide even after you have signed your papers.
When a borrower considers refinancing, there are specific reasons why. The most popular reason is to lower an interest rate which saves on interest and lowers the monthly payment. Or, a refinance can make sense when refinancing to a different loan term or to switch from an adjustable rate mortgage to a fixed rate loan. Those decisions are typically made before a loan application is ever completed and while the loan is being processed there is still time to cancel. And the rescission applies to both a standard VA refinance and a VA streamline.
VA rescissions are rare but they do occasionally occur, most often when the loan provided is not what the veteran anticipated. But again, this is a rare occurrence. You do have additional protections with a VA refinance loan that you don’t have with a VA loan used to purchase a home.