Can You Change Mortgage Companies?

“Changing mortgage companies” refers to three main scenarios: refinancing an existing mortgage with a new lender, the administrative transfer of an existing loan’s management to a new servicer, or switching lenders during the initial application phase before loan finalization.

Refinancing Your Mortgage

Refinancing a mortgage involves replacing an existing home loan with a new one, often from a different lender. This process requires a comprehensive review of a borrower’s financial standing and property details. Before applying, homeowners gather documentation such as W-2 forms, pay stubs, and tax returns for the past two years to demonstrate income. They also provide bank and investment statements to show assets, along with current mortgage statements and homeowners insurance declarations. For self-employed individuals, two years of tax returns, including all schedules, and year-to-date financial statements are commonly required.

The refinancing journey begins with selecting a new lender and submitting a formal application. The lender then initiates underwriting to evaluate creditworthiness, assets, debts, and the property’s appraised value. An appraisal determines the home’s current market value, which is important for the lender’s risk assessment. Loan approval follows a thorough review by the underwriter.

Once approved, the process moves to closing, where all necessary documents are signed, and closing costs, typically ranging from 2% to 5% of the loan amount, are paid. These costs can sometimes be rolled into the new loan. Federal law mandates a three-business-day right of rescission after signing, allowing borrowers to cancel the new loan. After this period, the new loan takes effect, and the original mortgage is paid off.

Homeowners consider refinancing for several reasons:
Lower interest rate: This can reduce monthly payments and overall interest paid.
Change loan term: Pay off the mortgage faster with a shorter term or lower monthly payments by extending the term.
Access home equity: A cash-out refinance provides funds for expenses like home improvements or debt consolidation.
Consolidate debt: Combine higher-interest debts into a lower-interest mortgage to streamline payments and potentially reduce total interest costs.

Changing Your Mortgage Servicer

A mortgage servicer manages the administrative aspects of a mortgage loan after it has been originated. This includes collecting monthly payments, maintaining escrow accounts for property taxes and insurance, tracking loan balances, and handling customer service. While a lender originates the loan, servicing rights can be sold, meaning payments might go to a different entity than the original lender.

A change in mortgage servicer is initiated by the loan owner or investor, not the borrower. This transfer does not alter the original mortgage loan terms, such as interest rate, principal balance, or loan term. It only changes where payments are sent and who handles administration. Federal regulations, including the Real Estate Settlement Procedures Act (RESPA), govern these transfers and require timely notification.

Borrowers typically receive two notices regarding a servicing transfer: one from the old servicer and one from the new. The old servicer sends a notice at least 15 days before the effective transfer date, while the new servicer sends one within 15 days after. These notices specify the effective date, the date the old servicer will stop accepting payments, and the new servicer’s contact information. Sometimes, a combined notice from both servicers may be sent.

Upon receiving a servicing transfer notice, borrowers should carefully review the information and verify the legitimacy of the new servicer. Update payment methods, especially for automatic payments, to ensure payments are directed correctly. Federal law provides a 60-day grace period after the transfer date; payments sent to the old servicer during this time cannot be treated as late. Monitoring account statements and credit reports is important to ensure payments are correctly applied.

Switching Lenders During the Application Process

Borrowers can change mortgage lenders during the loan application process before finalization and closing. A borrower is not committed to a lender until signing the final closing documents.

Common reasons for considering a switch include receiving a more attractive interest rate or different loan terms from a competing lender. Dissatisfaction with the current lender’s customer service, such as unresponsive loan officers or processing delays, can also prompt a change. If a borrower finds a better offer that significantly outweighs any costs of switching, it may be a prudent financial decision.

If a borrower decides to switch, they should inform their initial lender. Starting a new application means undergoing the entire underwriting process again, including new credit checks and potentially a new appraisal. This can lead to delays in the overall home purchase or refinance timeline.

Borrowers should be aware of financial implications when canceling an application. Any non-refundable fees already paid to the initial lender, such as appraisal fees or certain application fees, may be forfeited. Multiple credit inquiries from new applications could also cause a small, temporary reduction in a credit score.