When is a borrower allowed to cancel their loan application without a penalty?

A borrower is allowed to cancel their loan application without a penalty typically within three business days of applying for a loan. This is in accordance with the Right of Rescission established by federal law, specifically under the Truth in Lending Act (TILA). This provision is designed to protect borrowers by giving them a short window during which they can reconsider their decision and back out of the loan application without incurring any penalties.

This option accurately reflects the legal framework that is in place to ensure consumers have adequate time to understand the terms and to make informed decisions before committing to a mortgage loan. The three-day period allows borrowers to evaluate their mortgage options and ensures they are fully aware of the loan's implications before moving forward.

The other choices do not align with legal stipulations or common industry practices. For example, canceling at any time before closing may lead to complications with locking in terms that were previously agreed upon, and is not specifically covered by the right of rescission. Additionally, requiring a reason such as finding a better offer is unnecessary as the cancellation can be done as a matter of consumer rights within the specified timelines. Lastly, the timeframe of one week provided in another option is longer than what is stipulated by the law, further emphasizing the importance of the