Before the loan closes, you could be tempted to change mortgage lenders if you’re having a negative experience with one of them. While switching is possible, it’s crucial to consider the prospective repercussions, which might include higher charges, a delayed closing, and a new credit check.
However, depending on the circumstance, escaping a negative experience may be worthwhile, and the disadvantages may be tolerable. Here is what you should know if you’re considering changing mortgage lenders before closing.
Can you change mortgage lenders?
Before you sign the loan contract, you, the borrower, are free to change mortgage lenders at any time. However, it’s important to carry out your research before starting the closing process.
The vice president of mortgage at the online mortgage marketplace Morty, Robert Heck, advises prospective homebuyers to arm themselves with as much knowledge as they can. By doing your research in advance and comparing lenders and rates before closing, you may also save yourself unnecessary stress and money.
You can still end up with a lender you no longer want to work with despite your investigation. Consider switching to a new mortgage provider for a variety of reasons, such as:
- delays in the closing date, which may have an effect on the seller as well as you.
- inadequate customer service, slow response times, or disarray.
- Unexpected adjustments to the fees, terms, or circumstances of the loan.
- Changes in the people you work with frequently.
- a different lender’s reduced closing costs or interest rate.
- requirements known as an overlay that go above and beyond the usual loan programme qualification standards.
Ray Rodriguez, regional mortgage sales manager for metro New York at TD Bank, warns that in some circumstances a buyer can be forced to switch lenders.
“A buyer may not have any choice but to apply elsewhere,” he says, “if you find out during the process that you do not qualify for the product that you applied for or the property does not meet the lender’s guidelines.”
What to Take into Account Before Changing Lenders
While there are many reasons to think considering switching, there are also some potential drawbacks that can cause you to rethink your choice. These drawbacks may be worthwhile in some situations, but in others, you could be better off sticking with your present lender.
If you change lenders, it can cause a delay in the closing date, which might have an effect on your agreement.
In severe circumstances, the delay might even force the deal to fall through and you’d have to pay the seller a daily charge to make up for it. Since you were the one who broke the terms of the contract in this instance, the seller might keep your earnest money.
Lenders may occasionally provide closing times that are quicker than usual. Contact the lender and find out whether it can fulfil your closing deadline before you make the switch.
updated credit report
The new lender will want you to fill out a new application and submit your credit information.
An additional hard inquiry may not affect your credit score if you’re still early in the process because FICO aggregates mortgage lender inquiries into one for scoring purposes if they happened within a 14-day window for older scoring models and a 45-day window for newer ones.
Additionally, if your credit score dropped after you applied for your current loan, it can damage your chances of getting approved, however it might also make it more difficult for you to close with your existing lender.
Possible Increase in Interest Rate
You need not be concerned if you are switching because interest rates have decreased. However, in other circumstances, if your existing lender has locked in a rate for you, the new lender isn’t required to abide by that arrangement, which could result in a higher interest rate.
Check with your existing lender to see if it will match the rate or if it offers a float-down option to decrease your locked-in rate before switching to a new lender because it is providing a lower rate.
You could have to pay some of the fees again, depending on how far along in the mortgage process you are.
For instance, unless you’re looking for a loan through the Federal Housing Administration, which permits portability, appraisals are typically not transferable from one lender to another. According to Rodriguez, “there is a risk that the value of the home could come back lower than the original appraisal,” which could have an adverse effect on pricing, product, and other aspects.
In addition, when the lender conducts a credit check, you’ll probably also be required to pay fresh credit report fees. Think about how your budget and financial reserves can be impacted by these recurring fees.
Also keep in mind that the closing expenses may be higher with the new lender than with your existing one. Before making a choice, be sure to acquire a loan estimate that includes details about the charges and interest rate.
According to Rodriguez, the process of purchasing a home can be stressful, so it’s crucial to consider the emotional effects of delaying it. He continues, “You must decide if it’s worth it to switch lenders because doing so can increase a buyer’s level of stress.”
How to Change Mortgage Lenders
The steps for moving to a different mortgage lender are the same as those you had to take to submit an application with your existing one.
You’ll submit an application and supply all required papers once more if you already have a lender in mind. However, it’s crucial to keep in mind that if you decide to transfer lenders because another is providing a lower interest rate, that rate may alter as a result of a credit check and an appraisal.
You’ll need to shop around and get preapproved with several lenders so you can evaluate their offers if you don’t already have another lender in mind. It’s crucial to get started immediately away, especially if you have a deadline and are under contract for a home because this process can take several days.
You’ll lock in a rate and move forward with the underwriting procedure as soon as you discover the ideal lender. If no lender can provide a deal good enough to make the transition worthwhile, you could decide to stay with your present lender after all. You might be able to refinance the loan in the future if you don’t like your current lender.
If you decide to switch mortgage lenders, be careful to let your real estate agent and the seller know as they might need to set up a new closing date. Before deciding to switch lenders, speak with your agent to obtain their opinion on how it might affect you.