Can You Switch Mortgage Companies? Here’s How

Understanding Mortgage Refinancing

It is possible to transition from one mortgage company to another, a process known as refinancing. This involves replacing your existing home loan with a new one, often obtained from a different lender. The new loan’s terms, such as the interest rate, loan term, or type of loan, may differ from your previous agreement. This concludes your relationship with the initial mortgage company as the new lender assumes the debt, establishing a fresh financial arrangement.

Gathering Information for a New Mortgage

Initiating a mortgage refinance requires collecting personal and property-related financial documents. Lenders request income verification, which includes pay stubs and W-2 forms from the past two years, or tax returns for self-employed individuals. You will also need to provide bank statements for the last two to three months. Information regarding your employment history for the past two years is also required.

Property-specific documents are also important for the application. Expect to provide your current mortgage statement, recent property tax bills, and your homeowner’s insurance policy declaration page. Lenders assess your credit history and score, with conventional loans often requiring a FICO score above 620.

Navigating the Refinance Process

Once your financial documentation is compiled, the formal refinance process begins with submitting your application, often using a Uniform Residential Loan Application (Form 1003). Following submission, the loan moves into the underwriting phase, where the lender rigorously verifies all provided information, including employment, income, and assets, to assess the risk.

A crucial step in underwriting involves an appraisal, conducted by a licensed professional to determine the property’s current market value, which is vital for calculating the loan-to-value ratio. Simultaneously, a title company performs a comprehensive search of public records to confirm clear ownership and identify any existing liens on the property. This search is followed by the issuance of title insurance, which protects the lender from future claims against the property’s title. After all verifications are complete and conditions are met, the underwriter issues a loan approval.

Before closing, the lender is legally required to provide you with a Closing Disclosure (CD) at least three business days in advance, as mandated by federal regulation. This document details all final loan terms, fees, and closing costs. The final step is the closing, where you sign all legal documents, including the new promissory note and deed of trust or mortgage, officially replacing your old loan and completing the refinance.

Financial Aspects of Refinancing

Refinancing a mortgage involves financial outlays, commonly referred to as closing costs, which can range from 2% to 5% of the total loan amount. These costs include lender fees, such as origination fees, which might be between 0.5% and 2% of the loan amount, along with separate underwriting and processing fees. You will also encounter third-party fees, including the appraisal fee, which usually ranges from $400 to $800, and title insurance premiums, which vary based on the loan amount.

Additional third-party fees comprise the title search fee, recording fees paid to the local government for documenting the new loan, and potentially attorney fees in states where legal representation is required for real estate transactions. Beyond these direct costs, you may also need to pre-pay several months of property taxes and homeowner’s insurance premiums into an escrow account. These costs can either be paid out-of-pocket at closing, or they can be rolled into the new loan’s principal, though this increases the overall loan amount and the total interest paid over time.