Can You Switch Lenders While Under Contract?
Understand the possibility and process of changing mortgage lenders after your home purchase agreement is signed.
When buying a home, circumstances can change, leading some homebuyers to consider switching mortgage lenders even after their purchase agreement is signed. This can arise from finding a better interest rate, a different loan product, or improved service from another financial institution. While changing lenders while under contract is possible, it requires careful attention to the existing agreement and the potential implications. Understanding the process is important for navigating such a decision.
Evaluating Your Existing Purchase Agreement
Before considering a lender switch, a thorough review of your existing purchase agreement is an important first step. This document, sometimes called a sales contract, outlines the terms and conditions of the home purchase, including clauses related to financing. One such clause is the financing contingency, which grants a buyer a specific timeframe to secure a mortgage. This contingency protects your earnest money deposit if you are unable to obtain financing within the agreed period.
The purchase agreement also includes an appraisal contingency, allowing you to withdraw from the deal without penalty if the property’s appraised value is lower than the agreed-upon purchase price. Additionally, the contract specifies a closing date, which is the target date for completing the transaction. Understanding these deadlines and conditions is important, as a lender change could impact them. Any modifications to the financing terms or timeline might require an amendment to the purchase agreement, which would need the seller’s consent.
Key Considerations for a Lender Change
Deciding to switch lenders while under contract involves evaluating several factors that could affect your home purchase. The primary concern is the potential impact on your closing timeline. The mortgage underwriting process, which involves the lender assessing your eligibility, can take time, typically ranging from a few days to several weeks. Initiating a new loan application means restarting this process, potentially delaying your closing.
Another consideration is the risk to your earnest money deposit. If a new lender cannot approve your loan within the deadlines set by your purchase agreement’s financing contingency, you risk forfeiting your deposit to the seller. Switching lenders often incurs new costs. You may face a new credit report fee, which typically ranges from under $30 to $250, and a new appraisal fee. These fees are non-refundable.
Steps to Change Lenders
Once you have assessed your purchase agreement and considered the implications, the steps to change lenders begin with formally applying to the new financial institution. This involves submitting a complete loan application, providing necessary documentation such as income verification and asset statements. The new lender will then initiate their underwriting process to evaluate your financial profile and the property. This process involves a thorough review of your credit history, income, debts, and assets.
The new lender will also order a new appraisal of the property to confirm its market value. Upon successful completion of underwriting, the new lender will issue a loan commitment, approving your mortgage. It is important to ensure that the new loan commitment aligns with the financing terms previously agreed upon in your purchase contract to avoid any potential breaches.
Notifying All Parties
Communicating a decision to switch lenders requires clear and timely notification to all involved parties to maintain a smooth transaction. Inform your real estate agent immediately, as they can help coordinate communication with the seller’s agent. The seller, or their agent, needs to be aware of the change and any potential adjustments to the closing timeline. This proactive communication helps manage expectations and avoids misunderstandings.
Notify the closing attorney or title company, as they prepare the necessary legal documents and coordinate the closing. They will need the new lender’s information to facilitate the transfer of funds and title. Formally withdraw your application with the original lender, if applicable, to ensure no lingering obligations. Documenting all communications provides a record of these important updates.