Your mortgage lender plays a big role in your home purchase. And once that loan is closed, it may also continue sending you bills and processing your paperwork—what’s known as "servicing" your loan—making it 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.
- You have the right to change lenders anytime in the process before you close on your loan.
- Before you switch, you should consider the potential costs and delays involved in starting from scratch with a different lender.
- If you're unhappy with your current lender's service or rates, then it may be worth it to switch and ensure a better long-term relationship.
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 include:
- 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 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, and one is potential 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 40 to 60 days from start to finish, so this can add a month or more to your homebuying timeline.
A delay may also put you in violation of your sales contract, which could mean losing the home altogether. 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 include:
- 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 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 recover 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
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.
To get a sense of what your monthly mortgage payment could end up being, use this mortgage calculator.
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.
Frequently Asked Questions (FAQs)
When is it too late to change mortgage lenders?
You can change your lender at any time up until you sign a loan contract. There may be consequences to backing out of a mortgage deal at the last second, such as having to pay for a new appraisal for the new lender, but you won't face direct consequences from the would-be lender who loses your business.
How can the mortgage company change your lender without your input?
The mortgage company won't change your lender unless you start falling behind on your payments. At that point, the mortgage company may worry about whether it will be able to collect the debt from you, so it could sell your debt to a collection agency. At that point, the collection agency would technically own your debt, so they are the lender you need to repay.