Can I Change Mortgage Lenders Before Closing?
Explore the possibilities and practicalities of switching your mortgage lender before closing. Understand the key factors for a smooth transition.
Changing mortgage lenders before closing is possible, but involves complexities and potential delays. While borrowers might seek better terms, switching lenders can introduce financial implications. Understanding the mortgage application timeline and risks is important. This article explores the stages of a mortgage application, factors to evaluate before changing lenders, and the procedural steps involved.
Understanding Mortgage Application Stages
The mortgage application process unfolds in phases. The initial step involves pre-qualification or pre-approval, where a lender assesses a borrower’s financial standing and borrowing capacity. During this stage, borrowers supply financial information like income, assets, and liabilities.
Once a property offer is accepted, the mortgage application begins, requiring financial documentation. Borrowers submit pay stubs, W-2 forms, tax returns, and bank statements to verify income and assets. The lender reviews the borrower’s financial health. The process then moves into loan processing, where the lender collects additional information, orders an appraisal, and initiates a title search.
Underwriting follows, where an underwriter reviews documents, the appraisal, and the title report to assess risk and confirm loan eligibility. This verifies income, assets, employment, and debt-to-income ratios. If the application meets all criteria, the loan reaches “clear-to-close” status, ready for finalization. The final phase is closing, where parties sign documents, funds are disbursed, and title is transferred. The entire process often takes 30 to 60 days.
Evaluating a Lender Change
Deciding to change mortgage lenders before closing involves financial repercussions. A significant factor is the loss of fees paid to the original lender. Borrowers incur non-refundable charges such as appraisal fees. Credit report fees are also non-refundable once the report has been pulled.
Rate lock fees are another financial consideration. Borrowers lock in an interest rate to protect against market fluctuations. While some lenders offer rate locks for free, others may charge a fee, forfeited if the application is withdrawn. Some lenders also charge an application or product fee, which could be non-refundable.
Changing lenders results in delays to the closing timeline. A new application means restarting the process, including underwriting, appraisal, and title work, which can add weeks or months to the timeframe. This delay could jeopardize the home purchase. A new mortgage application involves another hard inquiry on a borrower’s credit report. While credit scoring models treat multiple mortgage inquiries within a short timeframe as a single inquiry, excessive inquiries could impact the credit score.
Executing a Lender Change
Once a borrower has decided to change lenders, procedural actions are necessary. First, formally notify the current lender of the decision to withdraw the application. This courtesy can help clarify outstanding obligations or potential refunds. Review initial loan agreements and disclosures for terms related to application cancellation.
Next, initiate a new mortgage application with the new lender. Re-submit financial documentation, including income verification, asset statements, and personal identification. Compile and submit documents anew according to the new lender’s requirements. This includes new authorizations for credit checks and appraisal.
The new lender proceeds with underwriting and approval, which can take weeks. Remain responsive to requests for information or clarification from the new lender to avoid delays. Coordinate with all parties involved in the home purchase to communicate the change and adjust the closing schedule. This helps manage expectations and mitigate issues from the extended timeline.