Can you change mortgage lenders before closing? | Mortgages and advice
If you have a bad experience with a mortgage lender, you may be tempted to switch before you take out the loan. While it’s possible to change, it’s important to keep the potential consequences in mind, including higher costs, delayed closing, and another credit check.
Depending on the situation, however, getting out of a bad experience can be worth it and the inconvenience can be manageable. If you’re considering switching mortgage lenders before closing, here’s what you need to know.
Can you change mortgage companies?
As a borrower, you have the right to change mortgage lenders at any time before signing the loan agreement. Still, it’s best to do your due diligence upfront, before you start the closing process.
“Homebuyers should arm themselves with as much information as possible,” says Robert Heck, vice president of mortgages at Morty, the digital mortgage marketplace. “You can also save yourself unnecessary stress and money by preparing the ground up front and researching different lenders and rates before closing.”
Despite your research, you could still find yourself stuck with a lender you no longer want to work with. There are many reasons to consider switching mortgage lenders, including:
- Closing date delays, which can impact both you and the seller.
- Poor customer service, unresponsiveness or disorganization.
- Unexpected changes in loan fees, terms or conditions.
- Constant changes with whom you work.
- A lower interest rate or lower closing costs with another lender.
- Requirements that exceed the standard qualification guidelines for the loan program, referred to as an overlay.
In some cases, a buyer may need to switch lenders out of necessity, says Ray Rodriguez, regional mortgage sales manager for New York at TD Bank.
“If you discover during the process that you are not eligible for the product you requested or the property does not meet the lender’s guidelines,” he says, “a buyer may have no other choice than to apply elsewhere”.
What to consider before switching to another lender
While there are plenty of good reasons to consider switching, there are also potential downsides that may make you think twice about making your decision. In some cases, these inconveniences may be worth it, but in others, it may be better to stay with your current lender.
It can take between 30 and 45 days on average to complete a mortgage, and if you change lenders, you will have to go through the whole process again. If the seller wishes to close before this date, it could have an impact on your transaction.
You may even have to pay a daily fee to the seller to make up for the delay, and in extreme cases it could cause the sale to fail. In this case, the seller could keep your deposit because you broke the contract.
In some cases, lenders may offer faster than average closing times. Before making the switch, contact the lender and ask if they can meet your closing deadline.
New credit check
You will need to submit a new application and undergo another credit check with the new lender.
If you’re still early in the process, further investigation may not impact your credit score – FICO combines inquiries from mortgage lenders into one for scoring purposes if they occurred during a period of 14 days for older scoring models and a period of 45 days. duration for the most recent.
Additionally, if your credit score has dropped since you applied for your current loan, this could impact your chances of approval – although it could also affect your ability to close with your current lender.
Potentially higher interest rate
If you’re changing because interest rates have fallen, you don’t have to worry about it. But in other scenarios, if you’ve locked in a rate with your current lender, the new lender isn’t bound by that agreement, which could result in a higher interest rate.
Before moving to a new lender because they offer a lower rate, check with your current lender to see if they are willing to match the rate or if they have a floating option to lower your locked-in rate.
Depending on how far along the mortgage process is, you may need to repeat some of the costs you’ve already paid.
In most cases, for example, assessments aren’t transferable from one lender to another, unless you apply for a loan from the Federal Housing Administration, which allows for portability. “If a new appraisal is required, there is a risk that the value of the home will fall back below the original appraisal,” says Rodriguez, “which could negatively impact price, product and other factors. “.
Plus, you’ll likely also have to pay a new credit report fee when the lender does a credit check. Consider how these recurring charges can affect your budget and cash reserves.
Also keep in mind that the new lender may charge higher closing costs than your current lender. Be sure to request a loan estimate with interest rate and cost information before making your decision.
The home buying process can be a stressful experience, Rodriguez says, so it’s important to consider the emotional impact of prolonging it. “Changing lenders can add to a buyer’s stress level,” he adds, “so you have to decide if it’s worth it.”
How to change mortgage companies
The process of switching to another mortgage lender is no different than what you had to do when you applied with your current lender.
If you already have a lender in mind, you will need to submit an application and provide all the necessary documents again. It’s important to note, however, that if you switch loans because another lender offers a lower interest rate, that rate may change based on a credit check and review.
If you don’t have another lender in mind yet, you’ll need to shop around and get pre-approved from multiple lenders so you can compare their offers. This process can take several days, so it’s important to get started right away, especially if you’re under contract for a home and have a deadline.
“As online platforms continue to reinvent real estate transactions, there are plenty of ways to compare mortgage options to ensure you get the most competitive deal,” Heck says.
Once you find the right lender, you will lock in a rate and proceed with the underwriting process. If you can’t find a lender who can offer enough of an offer to make the switch worthwhile, you can stick with your current lender after all. If you don’t like your current lender, you may have the option of refinancing the loan later.
Be sure to keep your real estate agent and seller informed of your decision to switch mortgage lenders, as they may need to set a new closing deadline. Consult your agent before making the decision to switch lenders for advice from your agent on how this might affect you.