TILA for conventional borrowers: second homes, rentals and the refinance rescission window
Reg Z covers your primary and second-home loans but generally not a conforming loan on a rental you will never occupy; purchases carry no rescission right, while a refinance with a new lender does.
Consumer-purpose or not: the split that matters for move-up buyers
Truth in Lending protects loans made primarily for personal, family or household purposes. A conforming loan on the house you will live in, or on a vacation home you use yourself, is squarely inside. A conforming loan on a property bought to rent out is another story: Fannie Mae and Freddie Mac buy investment-property loans, but Regulation Z generally treats a non-owner-occupied rental acquisition as business-purpose and exempt. That means a repeat buyer who keeps the old house and finances a new rental may receive a full set of TILA disclosures on one loan and only what the lender chooses to provide on the other. Ask the lender which regime it is applying before you compare the two sets of paperwork.
No rescission on a purchase — and the refinance exception you should know
The three-business-day right to cancel does not exist for a “residential mortgage transaction,” which is the legal name for a purchase loan. It reappears when you refinance your primary residence with a different lender, and partially when the same lender advances new money beyond the existing balance. Practical effect for a move-up borrower who later refinances: funds are not disbursed until the fourth business day, so do not schedule a payoff of a bridge loan or a HELOC for the signing date.
ARM disclosures on a 5/6, 7/6 or 10/6 conforming loan
If you take a SOFR-indexed ARM to ride out a short holding period, Reg Z requires a written notice 210 to 240 days before the first payment at the adjusted rate, and 60 to 120 days before later changes. The initial disclosure at application must show the index, margin, caps and a worst-case payment example; with a typical 2/1/5 cap structure on a 7/6 loan, the payment can rise materially in year eight. Keep the adjustable-rate handbook the lender gives you; it is the reference the CFPB expects you to have received.
Statements, payoffs and the prepayment question
Periodic statements every billing cycle and a payoff figure within seven business days of a written request are Reg Z obligations that apply regardless of which GSE owns the loan. Prepayment penalties are effectively absent from the conforming world because Fannie Mae and Freddie Mac do not purchase loans that carry them, so a lender quoting one on a “conventional” loan is describing a portfolio product — a useful tell when comparing offers. Finance charge and APR figures must be accurate within one-eighth of one percent on a regular loan, which is why the APR on your Closing Disclosure may differ slightly from the Loan Estimate without being wrong.
What to check
- Confirm whether a loan on a property you will not occupy is being treated as business-purpose — TILA disclosures may be missing by design.
- Do not plan payoffs on the signing day of a refinance: rescission delays funding to the fourth business day.
- On a SOFR ARM, diary the 210-day adjustment notice window and check the cap structure against your expected move date.
- A prepayment penalty on a “conforming” quote is a sign the loan is not actually going to Fannie Mae or Freddie Mac.
Frequently asked questions
Does TILA cover a conforming loan on a second home?
Generally yes. A second home you occupy part of the year is a consumer-purpose property, so the Loan Estimate, Closing Disclosure, ARM notices and servicing statements all apply. The exemption the GSEs still allow lenders to invoke concerns non-owner-occupied rental property, where the loan is presumed to be for business purposes.
Why did I get no right to cancel when I bought my new house?
Because Reg Z excludes purchase-money loans from the rescission right; it is designed for refinances and home-equity loans on a home you already own. Refinancing the same house with a new lender later would give you three business days to cancel, and the lender cannot fund until that period ends.
The rule in full: Truth in Lending Act (TILA) and Regulation Z. The borrower profile: Conventional loan borrowers. Related guides: Conventional loan requirements: credit, down payment, DTI, reserves, property · Conforming loan limits: how the FHFA number works and what happens above it · Closing costs explained: what is negotiable, what is not · ARM vs fixed-rate mortgage: when an adjustable rate makes sense.
Other federal rules for conventional loan borrowers
RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · HPA / PMI · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation
TILA / Reg Z for other borrowers
First-time buyers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing