Can I Switch Mortgage Lenders Before Closing?

Switching mortgage lenders before a home closing is a question many prospective homeowners consider. While generally possible, such a decision comes with various considerations that can impact your financial situation and the timeline for your home purchase.

Understanding the Feasibility of a Lender Switch

Changing mortgage lenders is indeed possible, though the ease and implications of such a switch largely depend on how far along you are in the mortgage application process. Early in the process, perhaps during the pre-approval stage, a switch might be relatively straightforward with minimal financial consequences. As the application progresses to stages like appraisal ordering, underwriting, or nearing clear-to-close, the complexity and potential costs of changing lenders significantly increase.

A primary motivation can be discovering a better interest rate or lower fees from a different lender, which could result in substantial savings over the loan’s lifetime. Dissatisfaction with the current lender’s service, communication, or perceived delays can also prompt a borrower to seek alternatives. Furthermore, unexpected changes in a personal financial situation might necessitate exploring different loan products or terms offered by another institution.

Navigating the Process of Switching Lenders

When a borrower decides to switch mortgage lenders, the initial step involves formally informing the original lender of this decision. This communication should be professional, clearly stating the intent to withdraw the application. While not always required, understanding any terms related to application withdrawal, especially concerning fees already paid, is advisable.

Following this, the borrower essentially begins a new mortgage application process with the chosen new lender. This means resubmitting all necessary documentation, which typically includes income verification, asset statements, and authorization for a new credit pull. The new lender will conduct a fresh underwriting review to assess financial eligibility and risk. It is also common for the new lender to require a new appraisal of the property, even if one was recently completed by the previous lender, as appraisal reports are often lender-specific.

Throughout this renewed application, maintaining clear and consistent communication with both the new mortgage lender and any involved real estate agents is important. Providing documents promptly and responding to inquiries from the new lender can help streamline the process. Coordinating with real estate agents ensures they are aware of the new timeline and can manage expectations with the seller, which is particularly relevant in a purchase transaction.

Financial and Time Implications of a Lender Change

Switching mortgage lenders before closing carries concrete financial implications. Borrowers may lose non-refundable fees already paid to the original lender.

These can include application fees, which might range up to $500. Credit report fees, typically between $25 and $100, are also often non-refundable. Appraisal fees, which can range from $300 to over $1,000 depending on the property and loan type, are another common non-refundable expense. Any rate lock fees paid to secure an interest rate with the initial lender would also be forfeited. Starting a new application with a different lender means incurring these same fees again.

Each new mortgage application typically results in a hard inquiry on a credit report, which can cause a small, temporary drop in a credit score, usually less than five points. However, multiple inquiries for a mortgage within a focused period, generally 14 to 45 days, are typically grouped as a single inquiry by FICO scoring models, mitigating the overall impact. Additionally, market conditions can change rapidly, potentially leading to a higher interest rate with the new lender, increasing the total cost of the loan over time.

Beyond financial costs, switching lenders significantly impacts the closing timeline. The entire underwriting process, which normally takes several weeks, restarts with the new lender. While typical mortgage closings occur within 30 to 60 days, restarting the process can add another 30 to 60 days to the schedule, causing considerable delays.

This delay can pose risks, especially in a home purchase agreement. Missing contractual closing deadlines could lead to penalties, such as the forfeiture of earnest money. Sellers might also impose per diem fees for each day the closing is delayed, or in some cases, choose to cancel the purchase agreement entirely, potentially leading to legal action.