The three-day rules nobody explains

There are three separate three-day rules in an American mortgage. They have different triggers, different purposes and, irritatingly, two different definitions of a business day. They are routinely described as though they were one rule, which is how people come to believe they can cancel a house purchase, and how other people are surprised that closing has moved.

One: the Loan Estimate, within three business days of an application

Once a lender has your application they have three business days to put a Loan Estimate in your hands. The useful part is that application is defined in the regulation rather than left to the lender’s judgement. It is six pieces of information:

• Your name
• Your income
• Your Social Security number, so that a credit report can be obtained
• The address of the property
• An estimate of the value of that property
• The loan amount you are asking for

When all six exist, the clock has started, whatever anybody chooses to call the conversation. Two protections come with it. Before you have received the Loan Estimate and told the lender you intend to proceed, they may not charge you a fee other than a bona fide fee for a credit report. And they may not require you to produce documents verifying your information as a condition of giving you the estimate. If you are being asked for two years of tax returns before you are allowed to see any numbers, that is worth pushing back on.

Two: the Closing Disclosure, at least three business days before you sign

The Closing Disclosure is the final document, and you must have received it at least three business days before consummation. Received, not sent. If it goes in the post it is treated as received three business days after mailing, unless there is evidence you had it earlier. Delivered electronically, it counts when it actually reaches you and only if you have agreed to electronic delivery.

The point of the waiting period is that you get to sit with the final numbers somewhere other than a closing table with a pen already in your hand. Read the first page against the Loan Estimate you were given at the start, and read the cash-to-close table, which exists to show you what moved between the two documents.

Almost nothing restarts the three days. Figures can be corrected, fees can be adjusted, and closing goes ahead as planned. Exactly three changes send you back to the beginning:

• The annual percentage rate becomes inaccurate. Broadly, that means a change of more than an eighth of a percentage point on a regular loan, or a quarter of a point on an irregular one.
• The loan product changes. A fixed rate becomes adjustable, or a thirty-year term becomes something else.
• A prepayment penalty is added to the loan.

Three: the right of rescission, and only on some loans

This is the rule people believe applies to everything, and it is the one that applies to the fewest transactions. If you refinance, or take a home equity loan or a line of credit, secured by the home you already live in, you have three business days after signing in which you may cancel the whole thing for any reason or for none. The lender does not disburse the money until the period has expired, which is why the funds on a refinance never arrive on the day you sign.

The clock starts on the latest of three events: the loan being consummated, the truth-in-lending disclosures being delivered, and two copies of the notice of the right to cancel being delivered to each person entitled to rescind. If the notice was never properly given, the period does not quietly expire on schedule.

Two exclusions matter. A purchase carries no right of rescission at all, because the rule covers credit secured by a dwelling you already live in rather than credit used to acquire or build it. And a refinance with your existing lender is exempt to the extent of the balance already owed, so only new money advanced is rescindable. Whether you can walk away is therefore genuinely different for a purchase, a refinance with a new lender, and a refinance with the one you already have.

Waivers exist and are almost never appropriate

Both the Closing Disclosure waiting period and the rescission period can be waived, but only for a bona fide personal financial emergency, and only by a dated written statement, signed by everyone entitled to the period, that describes the emergency. A pre-printed form does not qualify, and a closing date that is merely inconvenient is not an emergency. If a waiver arrives as routine paperwork, slow down rather than speed up.

What to do with all three

• Ask for the Loan Estimate on the day the six pieces of information exist, and gather estimates from more than one lender on the same day, because pricing moves.
• Ask for the Closing Disclosure as early as the lender can produce it, not on the third day before closing.
• Read the disclosure against the estimate line by line and ask about anything that moved.
• On a refinance, do not spend the money until the rescission period has run and the funds have actually arrived in your account.

Three rules, three clocks, three purposes. Two of them protect the comparison. Only one lets you change your mind, and it never applies to a purchase.

This is a design demonstration and an explanation of published rules, not advice about your file. Nothing here is an offer or a commitment to lend. See thedisclosures.