You don’t have to stay with your lender if you’re unhappy with them.
Your choice of a home is significantly influenced by your mortgage lender. Additionally, after the loan is closed, it can keep sending you bills and handling your paperwork (this is referred to as “servicing” your loan), remaining a constant in your life for years to come.
It’s crucial that you are happy with the offerings and costs of your mortgage lender for these reasons. If you’re not, you might want to think about switching mortgage lenders before closing on your loan—regardless of whether you’ve already locked in your interest rate, made an offer on a house, or begun submitting your paperwork.
- Before your loan closes, you have the option to switch lenders at any moment.
- Consider the potential fees and delays associated with starting over with a different lender before making the switch.
- It might be worthwhile to transfer lenders in order to ensure a better long-term connection if you’re dissatisfied with the service or rates offered by your existing lender.
Why You Might Switch
There are a number of reasons why you might not like your mortgage provider. The most frequent is a delay in closure. This creates a dilemma for both buyers and sellers. While buyers frequently have already sold their houses or have had their rental leases expire, sellers may be waiting on the selling money to close on their own home purchase.
You may also want to think about changing lenders for the following reasons:
- Unexpected modifications to fees or loan terms
- Lack of response or poor client service
- documents or paperwork that have been lost
- Changes in the people you work with (e.g. loan officers, escrow agents)
There may be a better offer available as well. Each lender has its own rates, fees, and promotions, and mortgage rates are continuously changing. Another lender may offer you a more alluring bargain if you had your loan preapproved in the past or the market has been unstable.
Whatever the cause, if you’re not satisfied with your existing mortgage provider, you have the freedom to switch.
Drawbacks of Switching
There are drawbacks to switching mortgage providers, one of which is potential delays. With a new lender, your application must be completely new. That entails updating your documentation, checking your credit, and fulfilling any additional loan requirements the lender may have. Closing typically takes 40 to 60 days to complete, so this could push back your home purchase date by a month or more.
A delay could also cause you to break the terms of your sales agreement, which could result in you completely losing the house. You would need to ask for a postponement of your closing date in order to proceed. For these extensions, vendors could occasionally charge you a fee called as a per diem.
Other drawbacks of switching include:
- A different rate: Your new lender is not required to honor the low rate you locked with your previous one. A new rate based on the market and your credit score will be provided to you (which also may have changed since you applied with your last lender). Your interest rate can end up being greater than on your first loan, depending on how things turn out.
- Increased closing expenses: Lenders have a wide range of closing expenses. Your new lender can impose more fees or charge a higher interest rate than your old lender. Prior to changing lenders, it’s critical to compare all fees and expenditures.
- An additional credit check: Prior to beginning the loan application process, it’s likely that your prior mortgage lender previously ran your credit. This is seen as a difficult inquiry and typically lowers your score slightly. This could affect the rate your new lender is able to provide you because your interest rate is heavily dependant on your credit score—especially if you were on the cusp of two credit tiers.
- Paying for a fresh appraisal: Before approving a loan, lenders need updated appraisals. These make sure that if you don’t pay back the loan, the lender can still get their money back. You may need to pay for this service again, along with any other expenses you may have pre-paid with your previous lender, if you have paid your former lender to conduct an appraisal. If this is the case, your prepayment may not transfer to your new mortgage company.
Choosing Your Lender
Switching mortgage lenders could still be worthwhile despite these negative effects. But be careful when picking your new lender. Comparing customer service, closing expenses, and other fees is important when shopping around for the greatest deals.
Use this mortgage calculator to estimate the potential size of your monthly mortgage payment.
Once you’ve decided on a new lender, let everyone who needs to know know—including your agent, the seller, the escrow agent, and others—about the specifics of your new loan. To make the modification official, you will probably need to add an extension addendum to your sales contract.
Frequently Asked Questions (FAQs)
How late can you switch mortgage lenders?
Up until you sign a loan contract, you are free to switch lenders whenever you choose. You could have to pay for a new evaluation for the new lender if you decide to cancel a mortgage arrangement at the last minute, but you won’t suffer any immediate repercussions from the prospective lender that loses your business.
How may your lender be changed by the mortgage business without your consent?
Until you start missing payments, the mortgage company won’t switch your lender. The mortgage company may then sell your debt to a collection agency out of concern that it won’t be able to recover the amount from you. The debt would then technically belong to the collection agency, who would then be the lender you would have to pay back.