Can I Change Mortgage Lenders Before or After Closing?

Changing mortgage lenders is possible both before and after the original loan has finalized. The ability to switch, and its implications, vary significantly depending on the stage of the home financing process. Understanding these nuances helps borrowers make informed decisions.

Changing Lenders During the Application Process

Borrowers generally have the right to switch mortgage lenders at any point before the final loan agreement is signed at closing. While possible, making a change during the application process can introduce complexities and potential financial consequences. The further along the loan progresses, the more challenging and costly a switch becomes.

Changing lenders after the application is underway, especially after steps like appraisal or underwriting, often means restarting the loan process. This involves submitting a new mortgage application and providing all financial documentation. A new lender will also conduct a new credit check, which, while typically grouped with other mortgage-related inquiries within a 14-to-45-day window to minimize credit score impact, still constitutes a hard inquiry.

Switching lenders mid-process can result in the loss of non-refundable fees already paid, such as for credit reports and appraisals. If an appraisal has been conducted for a conventional loan, a new appraisal may be required by the new lender. While FHA and VA loan appraisals can sometimes be transferred, conventional appraisals usually cannot.

Changing lenders late in the process can cause delays to the scheduled home purchase closing date. Such delays might lead to penalties, including per diem fees for each day the closing is postponed. Prolonged delays could even jeopardize the entire purchase agreement, potentially resulting in the forfeiture of earnest money deposits.

Changing Lenders After Loan Closing

Once a mortgage loan has officially closed and funds disbursed, changing lenders is known as refinancing. Refinancing involves securing a new mortgage loan to pay off the existing one, effectively replacing the old loan with new terms. This is a common financial strategy for homeowners seeking to alter their mortgage arrangement.

Homeowners consider refinancing for various reasons, such as securing a lower interest rate, which can lead to reduced monthly payments and significant savings over the loan’s lifetime. Refinancing also allows for changes to the loan term, such as converting a 30-year mortgage to a 15-year term or vice versa, or switching between adjustable-rate and fixed-rate mortgages. Additionally, a cash-out refinance enables borrowers to access their home equity by taking out a larger new loan and receiving the difference in cash.

The refinancing process mirrors the original mortgage application, requiring a new application, credit checks, and typically a home appraisal. Underwriting is also a necessary step. The entire process can take between 15 and 45 days or more to complete.

Refinancing incurs closing costs, similar to those paid during the initial home purchase. These costs typically range from 2% to 6% of the new loan amount. Expenses include loan origination fees, appraisal fees, title insurance, and attorney fees. While some conventional loans may allow immediate refinancing, other loan types like FHA, VA, and USDA often have specific waiting periods, known as “seasoning periods,” which can range from several months to a year, particularly for cash-out refinances.

Factors to Evaluate When Considering a Change

When contemplating a mortgage lender change, evaluate several financial factors for both pre-closing switches and post-closing refinances. Comparing interest rates and the Annual Percentage Rate (APR) from different lenders is a primary consideration, as even a small difference can significantly impact the total loan cost. The APR provides a more comprehensive cost picture, encompassing the interest rate and certain associated fees.

Understanding all potential fees and closing costs is important. These can include loan origination fees, typically around 1% of the loan value. Other costs often include appraisal fees, title insurance, and attorney fees, which collectively can range from 2% to 6% of the loan amount for a purchase or refinance. Borrowers should scrutinize the Loan Estimate document provided by lenders, which itemizes these charges.

The impact on credit scores should be considered, as each new loan application involves a hard inquiry. While multiple inquiries for a mortgage within a specific timeframe (typically 14 to 45 days) are often treated as a single inquiry by credit scoring models, continuous applications outside this window can cause a temporary dip in credit scores. Maintaining a high credit score is beneficial, as it can influence the interest rates offered by lenders.

Evaluating the timeline implications is important. Switching lenders during a home purchase can lead to delays, potentially affecting contractual closing dates and incurring penalties. Refinancing also takes time, typically several weeks, during which market interest rates could fluctuate. A careful review of the new loan terms, such as loan duration, fixed or adjustable rates, and any prepayment penalties, is necessary to ensure the new mortgage aligns with long-term financial goals.