Can I Change Mortgage Companies? Here’s How

Homeowners often wonder if they can change mortgage companies. This is typically accomplished through a process known as refinancing, which involves obtaining a new loan to pay off your existing mortgage, effectively replacing it with new terms and often a different lender. This differs from a mortgage servicer transferring your loan to another company, which occurs without any action on your part. Refinancing is a deliberate financial decision made by the borrower to achieve specific objectives.

Reasons to Refinance Your Mortgage

Homeowners consider refinancing their mortgage for several financial reasons. A primary motivation is to secure a lower interest rate than their current loan. Even a reduction of one percentage point can lead to savings over the life of the loan and decrease monthly payments. Lowering the interest rate can reduce the total amount of interest paid over decades.

Another common objective is to reduce the monthly mortgage payment, which can be achieved through a lower interest rate or by extending the loan term. Conversely, some homeowners choose to shorten their loan term, such as moving from a 30-year to a 15-year mortgage. While this results in higher monthly payments, it can lead to interest savings and faster homeownership.

Converting between adjustable-rate mortgages (ARMs) and fixed-rate mortgages is also a reason for refinancing. Homeowners with an ARM might refinance to a fixed-rate loan to gain predictability in their monthly payments and protect against potential interest rate increases. Additionally, a cash-out refinance allows homeowners to borrow against their home equity, receiving the difference between the new, larger loan and their existing balance in cash. This cash can be used for various purposes, such as home improvements, debt consolidation, or other significant expenses.

Preparing for a Mortgage Refinance

Homeowners should gather financial documents before applying for a mortgage refinance. This includes recent pay stubs and W-2 forms for the past two years. For self-employed individuals, tax returns for the past two years and year-to-date profit and loss statements will be necessary.

Lenders also require bank statements for all checking, savings, retirement, and investment accounts. Additionally, current mortgage statements, property tax statements, and homeowners insurance policy details will be needed to provide a complete financial picture of the property.

Check your credit score and report. Lenders use credit scores to assess creditworthiness and determine interest rates. Obtaining a free credit report from AnnualCreditReport.com allows individuals to review for accuracy and dispute any errors, which can potentially improve their score before applying. Shopping for multiple lenders is important, as comparing Loan Estimates (LEs) from several institutions can reveal different terms, interest rates, and fees, ensuring the homeowner selects the most favorable offer.

The Mortgage Refinance Application and Closing Process

Once documents are gathered and a lender chosen, the formal refinance application process begins. The homeowner submits the completed application along with all required financial documentation to the selected lender. This initiates the lender’s review of the borrower’s financial profile.

Following application submission, the loan enters the underwriting phase. The lender verifies the provided financial information, including income, assets, and debts. Underwriters may request additional documentation or clarification to ensure all criteria are met for loan approval.

A property appraisal is ordered to determine the home’s current market value, which serves as collateral for the new loan. A title search is also conducted to confirm clear ownership of the property and identify any existing liens. After these evaluations, the borrower receives a Closing Disclosure (CD) at least three business days before the scheduled closing date. This document details the final loan terms, projected payments, and all associated closing costs.

The final step is the closing, where the borrower signs the new loan documents. Review the Closing Disclosure thoroughly and compare it to the initial Loan Estimate to ensure consistency in terms and fees. Closing costs are paid at this stage, and the new mortgage replaces the old one.

Understanding Refinance Costs and Eligibility

Refinancing a mortgage involves various costs and eligibility requirements. Closing costs for a refinance typically range from 2% to 6% of the loan amount. These costs can include origination fees, appraisal fees, and title insurance fees. Additional fees may cover credit reports, attorney services, and recording the new mortgage. Borrowers have the option to pay these costs out-of-pocket or to roll them into the new loan, which increases the loan amount and the total interest paid over time.

Lenders assess eligibility based on financial criteria. A strong credit score is generally required, with conventional loans often needing a minimum FICO score of 620, though higher scores can secure better interest rates. For FHA loans, a credit score of 580 may be sufficient. The debt-to-income (DTI) ratio, which compares monthly debt payments to gross monthly income, is a factor, with many lenders preferring a DTI of 43% to 50% or lower.

The loan-to-value (LTV) ratio represents the loan amount relative to the home’s appraised value. For conventional loans, an LTV of 80% or less helps avoid private mortgage insurance (PMI). Cash-out refinances require retaining equity, allowing borrowers to take out cash up to 80% of the home’s value. Waiting periods apply after certain financial events, such as bankruptcy.