How to Switch Mortgage Lenders before Closing
For most of us, a house will be our most significant purchase, and paying our monthly mortgage will be one of our most significant expenses. This makes researching mortgage lenders before closing on a property incredibly important. We were about to switch our mortgage lender before closing.
When I first got married, buying anything with my spouse was frustrating. I didn’t understand why we could not just buy a TV. He had to research it, look at competitors and check costs at different locations. What I expected to be a quick purchase seemed to drag on. Now I am older, and I’d like to think wiser and fully understand why researching our purchases is essential.
Our First Lender Experience
When we bought our first house, we were young and incredibly inexperienced in purchasing a home. My husband and I self-calculated what we felt comfortable with as our monthly mortgage payment and spoke to a real estate agent about seeing houses in that budget. He guided us through the process of what purchasing a home actually entails and put us in contact with his preferred loan officer. After going through the pre-qualification process, we realized that we could increase our home loan amount and get more house.
I don’t remember where we were in the process, but my cousin told us to call his mortgage broker to talk rates. In all honesty, his interest rate beat the interest rate that we had locked. We called our real estate agent and spoke to him about changing lenders, but we were discouraged from doing so. Our real estate agent did not want to hurt his relationship with the current lender, and we were already in the underwriting process. He warned us that switching lenders could delay closing on our house. We felt we had to stay with our current lender, so we did.
Did we have to stay with our existing lender? Absolutely not. Under consumer protection laws, we were entitled to switch mortgage lenders if the loan was not closed. Borrowers can switch mortgage lenders after the preapproval letter, during processing, and during the underwriting process. A borrower can switch mortgage lenders anytime if a mortgage company is not servicing the loan.
Why Would You Switch Mortgage Lenders
In our example, we wanted to switch mortgage lenders because we could receive a better interest rate. Other people may consider switching lenders because the customer service may have been a bad experience for them. A lender who is slow to respond or loses important documents may slow the process, and a new closing date may have to be agreed upon. A new lender may help against the heartburn of an unorganized one. So the question came up, Can you switch mortgage lenders before closing, and if so when to switch mortgage lenders.
When switching mortgage lenders because of interest rates, be sure to also consider closing costs. Your loan officer should have given you a loan estimate. It is essential to consider all aspects of the loan.
Disadvantages to Changing Mortgage Lenders
Delayed Closing
When changing mortgage lenders, you should consider the timing of the switch. For us, it would have meant delaying or closing date because we were in the underwriting process. Before considering the change, check with your real estate agent to verify if the seller is okay with a later close date.
Rerunning Your Credit Report
The mortgage company will run your credit score by making a hard inquiry during the loan process. When a new loan is created with a different lender, they will also have to run a new credit report. While this should only temporarily affect your credit, it may change the mortgage products you are being offered due to a lower credit score. Before reaching this step, talk to the loan officer about your options.
Having the Property Reappraised
Loan officers work with an appraisal management company (AMC). The AMC consists of a panel of appraisers who the loan officer has picked to go out to properties and appraise the value. A buyer may incur new appraisal fees if the appraiser does not sit on the new company’s panel.
How to Change Mortgage Lenders
Changing mortgage lenders is not as daunting as you might think. It simply involves getting preapproved for your home again. This should involve the same documents used with the first lender. Be sure to be as transparent as possible. Your real estate agent should discuss the switch with the seller’s agent. You should also provide the preapproval letter as soon as you receive it.
A crucial conversation you should have is one with the new mortgage lender. Tell the lender the reason you are switching mortgage lenders. Is it for a better deal? Were there higher closing costs? Do they offer a lower interest rate? Did you experience poor customer service? Have a conversation with the new lender so they can ensure you are taken care of in the way you prefer.
The Take-Away
As a consumer, you are protected to switch lenders during the closing process. You do not have to go with the original lenders before closing as long as the loan has not been serviced. The benefits of a lower mortgage rate could mean a difference in your monthly expenses. Always consider the pros and cons of any mortgage-related decision.
p.s.
You can also change your mortgage servicers…You refinance with a different mortgage company. You cannot transfer a mortgage to another lender until the servicer decides to, or you refinance.
