Should You Switch Mortgage Lenders Before Closing?

If you're not happy with your lender, you don't have to stick around

Sold sign on a house
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Getty Images/Paul Bradbury

 

Your mortgage lender plays a big role in your home purchase. And once that loan is closed, they may also continue sending you bills and processing your paperwork—what’s known as servicing your loan—making them a constant presence in your life for many decades to come. 

For these reasons, it’s important that you’re satisfied with your mortgage lender’s services and fees. If you’re not—even if you’ve locked your interest rate, put an offer on a home, or started submitting your documents—you may want to consider switching mortgage lenders before closing on your loan.

Why You Might Switch

There are several reasons you may be dissatisfied with your mortgage lender. One of the most common is delays in closing. That puts both buyers and sellers in a bind: Sellers may be waiting on sale proceeds to close on their own home purchase, while buyers have often already sold their homes or seen their rental leases run out. 

Other reasons you may want to consider switching lenders:

  • Unexpected changes in fees or loan conditions
  • Unresponsiveness or bad customer service
  • Misplaced paperwork or documents
  • Changes in who you’re working with (e.g. loan officers, escrow agents)

You might also simply see a better deal out there. Mortgage rates are constantly in flux, and each lender offers its own rates, fees and promotions. If you were preapproved for your loan some time ago—or the market has been volatile—you may receive a more enticing deal from another lender.

Whatever the reason, you have the right to change mortgage lenders if you’re unhappy with your current one.

Drawbacks of Switching

Changing mortgage lenders has downsides. One is delays. With a new lender, you have to start from square one on your application. That means resubmitting documents, pulling your credit, and meeting all other loan conditions the lender provides. Closing generally takes 30 to 45 days from start to finish, so this can add a month or even more to your homebuying timeline. 

A delay may also might put you in violation of your sales contract, which could mean losing the home all together. In order to move forward, you would need to request an extension to your closing date. In some cases, sellers may charge you a fee, known as a per diem, for these extensions.

Other Drawbacks of Switching

  • A different rate: If you locked a low rate with your last lender, your new one doesn’t have to adhere to that lock. You’ll be quoted a new rate based on the market and your credit score (which also may have changed since you first applied with your last lender). Depending on how things shake out, your rate could end up higher than on your first loan.
  • Higher closing costs: Closing costs vary greatly by lender. Your new lender may charge additional fees, or they might charge higher rates than your previous lender. It’s important to compare all fees and costs of a lender before making a switch.
  • An additional credit check: Your previous mortgage lender likely already pulled your credit before starting to process your loan. This is considered a hard inquiry and usually has a small negative impact on your score. Because your interest rate is based heavily on your credit score, this could influence the rate your new lender is able to offer you—especially if you were on the border between credit brackets.
  • Paying for a new appraisal: Lenders require appraisals before issuing a loan. These ensure the lender can recoup the money they lend you if you default on the loan. If you already paid your old lender to conduct an appraisal, that might not carry over to your new mortgage company, and you might have to pay for this service again—as well as other fees you may have pre-paid with your old lender. 

    Choosing Your Lender Carefully

    Despite these consequences, it may still be worth it to switch mortgage lenders. But make sure to choose your new lender wisely. Shop around for the best rates and be sure to compare each on customer service, closing costs, and additional fees as well.

    Once you select a new lender, communicate the details of your new loan to all important parties, including your agent, the seller, the escrow agent, and more. You will likely need to add an extension addendum to your sales contract to solidify the change.

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    Article Sources

    1. Consumer Financial Protection Bureau: Can my final mortgage costs increase from what was on my Loan Estimate?

    2. The Mortgage Reports: Should You (Can You) Switch Mortgage Lenders?

    3. Consumer Financial Protection Bureau: Learn About Loan Costs

    4. Consumer Financial Protection Bureau: What exactly happens when a mortgage lender checks my credit?

    5. Consumer Financial Protection Bureau: What are appraisals and why do I need to look at them?