Getting a mortgage should start before you even begin looking at property to buy. But what if you end up not wanting to stay with the lender you originally chose, can you switch mortgage lenders before closing?
First, homebuyers should get a preapproval letter from a lender, which involves submitting a mortgage preapproval letter along with the necessary accompanying documents. The process can take time, but it gives buyers the confidence to make offers knowing they are already knee-deep in the mortgage process.
Finding the right mortgage lender can be one of the most important parts of your home buying journey But what if, after signing on the dotted line, you realize your lender isn’t the perfect fit? Is it possible to change home loan lenders once you’ve already started the process?
The short answer is yes, you can change lenders before closing on your home loan. However there are some key factors to consider before making the switch. In this article we’ll explore when and why you might want to change lenders, the potential risks and downsides, and the step-by-step process for how to go about it.
When Might You Want to Switch Lenders?
There are a few common scenarios that prompt borrowers to consider finding a new lender:
You Find a Better Deal
The most obvious reason to change lenders is if you discover a better deal elsewhere. For example, if mortgage rates drop after you’ve already locked in your rate, you may want to shop around to see if another lender can offer lower interest rates or fees. Just be sure to compare the full costs and loan details – a lower rate doesn’t always guarantee overall savings.
You’re Unhappy With Your Experience
Poor customer service, lack of communication, delays, or other issues with your current lender could motivate you to jump ship. If you don’t feel like your lender is providing an optimal level of service, it may be worth exploring alternatives.
Your Loan is Sold
Sometimes lenders sell off loans to other companies after origination. If you’re notified your mortgage has been sold, you may consider refinancing with a different company you’d prefer to work with long-term.
Potential Downsides of Switching Lenders
While changing lenders is certainly an option, it does come with some risks and drawbacks:
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Delayed Timeline: Starting the process over with a new lender will likely push back your closing date.
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New Credit Check: A new lender will need to pull your credit again, which could temporarily lower your score.
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Higher Closing Costs: Despite a better rate, your new lender could charge higher origination fees or other costs.
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Repeat Appraisal: Most lenders will require a new home appraisal, meaning you’ll have to pay for this out of pocket again.
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Starting Over: Be prepared to resubmit all documentation and paperwork to your new lender.
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Breach of Contract: Backing out with your existing lender could mean losing your earnest money deposit.
Carefully weigh the pros and cons before making your decision. While annoying, a refinance down the road is sometimes less disruptive than changing lenders at the eleventh hour.
How to Change Lenders Before Closing
If you decide moving forward with a new lender is your best option, here are the steps to take:
1. Get Pre-Approved
Your first move is getting pre-approved with the lender you intend to switch to. Submit your application and required documents so they can verify your eligibility.
2. Inform Your Agent & Seller
Let your real estate agent know you’ll be changing lenders as soon as possible. They’ll need to coordinate with the listing agent to draw up a new purchase agreement and closing timeline.
Be upfront with the sellers about your reasoning for the change – transparency will go a long way towards keeping things amicable. Offer to provide updated proof of funds and your new pre-approval letter.
3. Review Closing Costs & Timelines
Take a close look at your closing disclosures from each lender. Make sure the switch makes sense financially when factoring in interest rates, origination fees, and other costs.
Get estimates from your new lender for how far back the change could push your closing date. Communicate any changes to closing to your real estate agent.
4. Cancel With Original Lender
Once you’ve done your due diligence with the new lender, formally withdraw your application with your original lender. This may require submitting cancellation requests and paperwork in writing.
Ask them to send any refunds for fees already paid directly to you or your new lender.
Alternatives to Changing Lenders
If switching seems too messy or risky, here are a couple other options to consider:
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Ask your current lender to match the better deal – They may be willing to adjust your rate or fees to earn your business.
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Float down your rate – Some lenders let you “float down” your locked rate if rates improve – check if this perk was part of your agreement.
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Wait to refinance – Once you’ve made 6-12 months of payments, you can refinance for better terms with minimal fuss.
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Negotiate closing credits – Rather than a lower rate, your lender may agree to provide closing cost credits.
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Buy points – You can pay points upfront to buy down your interest rate if it’s currently higher than you’d like.
The Bottom Line
Changing home loan lenders is certainly possible, but also comes with headaches and risks. If you decide it’s your best course of action, be prepared for a delayed closing and replay of the application process.
Work closely with real estate agents and sellers, compare all costs thoroughly, and give yourself plenty of buffer time. With patience and planning, switching lenders can pay off, but also consider easier alternatives like negotiating with your current lender.
When might you consider changing mortgage lenders?
The decision to switch mortgage lenders after signing a purchase contract but before closing is not easy. Buyers are already under the stress of completing inspections and the closing date deadline. Furthermore, the mortgage you get is an important financial decision that will affect your finances for years to come, and buyers want to avoid being rushed into the decision. However, there are times when switching lenders is the right choice.
Start the application process.
Once you have chosen a new lender, you must start the loan application process from scratch, which will involve filling out a new loan application and providing all the necessary documentation, such as income verification and tax returns. The new lender must also order a new appraisal and title search.
Once you’ve completed the application process, the lender and their underwriting team will review your documents and advice once the loan is approved.
Switching Mortgage Lenders Before Closing May COST You
FAQ
Can you transfer your mortgage to another lender?
Is it hard to switch mortgage lenders?
Is it good to change mortgage lenders?
Can I switch mortgage companies without refinancing?
How do I change my mortgage lender?
If you want to change your mortgage lender, the first step is to get another preapproval. It’s important to understand the costs associated with changing lenders, including appraisal fees. Remember, the only way to change your lender after your mortgage has been serviced is to refinance your mortgage.
How do I switch to a different mortgage lender?
Best Mortgage Refinance Lenders. The process for switching to a different mortgage lender is no different from what you needed to do when you applied with your current one. If you already have a lender in mind, you’ll submit an application and provide all of the necessary documentation all over again.
Why should I change my mortgage lender?
Another reason for changing your mortgage lender might include poor customer service. Poor customer service might cause unnecessary or unexplained delays, unresponsiveness, lost documents or too many changes in your contact within the lender’s organization. Many mortgage lenders specialize in originating mortgages and are not mortgage servicers.
Should you switch mortgage lenders?
The urge to switch mortgage lenders is not uncommon among mortgage borrowers. This sometimes happens because borrowers are rarely in the mortgage marketplace, and real estate financing can be complex. Everybody wants to get the best rates and terms — with good reason.