Mortgage Sold Before First Payment? What You Need to Know
Learn why mortgages are sold before the first payment, how it affects you, and what steps to take to ensure a smooth transition to your new loan servicer.
Getting a mortgage is a major financial commitment, and it can be unsettling to learn that your loan has been transferred before you’ve even made the first payment. While this might seem unusual, it’s actually a common practice in the mortgage industry. Understanding what this means for you can help prevent confusion and ensure your payments go to the right place.
Even though your lender has changed, your loan terms remain the same. However, there are important steps to take to avoid missed payments or other issues.
Lender’s Right to Transfer
The lender that originates your mortgage may not service it long-term. Financial institutions frequently sell mortgages to free up capital, manage risk, and continue issuing new loans. The buyer could be another bank, a government-sponsored enterprise like Fannie Mae or Freddie Mac, or a private investor.
This transfer does not change your loan terms—your interest rate, monthly payment, and repayment schedule remain the same. What changes is the company responsible for collecting payments and managing your escrow account. The new servicer handles payment processing, tax and insurance disbursements, and customer support.
Federal regulations, including the Real Estate Settlement Procedures Act (RESPA), protect borrowers during loan transfers. RESPA ensures payment processing is not disrupted and prevents penalties for delays caused by the transition.
Notification Requirements
Federal law requires both the previous and new servicers to notify borrowers in writing when a mortgage is transferred. The original servicer must send a notice at least 15 days before the transfer date, and the new servicer must provide its own notice within 15 days after taking over. Sometimes, a combined notice is issued.
These notices include the effective transfer date, the new servicer’s contact details, and any changes to payment instructions. Borrowers also receive a 60-day grace period during which payments mistakenly sent to the old servicer cannot be considered late or penalized.
The notice should also explain how to dispute errors or request information. Borrowers should review it carefully to confirm their loan balance and escrow details are correct. If discrepancies arise, contacting the new servicer promptly can help resolve them.
Submitting Payments to the New Servicer
Once a mortgage is transferred, borrowers must ensure payments go to the correct destination. New servicers may have different account numbers, mailing addresses, or online portals. Even those enrolled in autopay should verify whether banking details need updating.
Electronic payments are usually the fastest and most secure, but checks or bank bill pay services can also be used. If mailing a check, including the loan number on the memo line helps prevent processing errors. Some servicers offer payment apps or phone payment options, though these may have fees.
Borrowers using third-party bill pay services should update payee details promptly. Payments sent to the old servicer may cause delays, especially if funds are not automatically forwarded. Checking account statements for successful processing is a good habit, particularly in the first few months after the transfer.
Late Fees and Payment Crediting
Ensuring payments are applied correctly is essential when switching to a new servicer. Even minor processing delays or clerical errors can result in misapplied payments, late fees, or negative credit reporting. While federal law provides a 60-day grace period during which payments sent to the old servicer cannot be considered late, borrowers should still monitor their accounts.
Many servicers process payments based on when they are received, not when they are sent. If a check is mailed close to the due date and the servicer takes longer to process it, a late fee could still be assessed. Same-day or next-day electronic payments reduce this risk, but borrowers should check cut-off times, as payments received after a certain hour may be posted on the next business day.
If a servicer wrongly applies a late fee, borrowers should document their payment method, confirmation numbers, and bank statements. Providing this evidence in writing can help resolve disputes.
Confirming Your Escrow Account
A mortgage transfer also affects escrow accounts, which cover property taxes and homeowners insurance. Since the new servicer manages these funds, borrowers should verify that their escrow balance has been transferred correctly and that future disbursements will be made without interruption.
Reviewing the first escrow statement from the new servicer is the best way to confirm accuracy. This document outlines the current balance, expected tax and insurance payments, and any projected shortages or surpluses. If discrepancies arise, such as missing funds or incorrect payment schedules, contacting the servicer immediately can prevent missed tax or insurance payments.
Borrowers should also check with their local tax authority and insurance provider to ensure payments are made on time. A lapse in coverage or delinquent taxes could lead to penalties or even foreclosure risks.
Handling Concerns or Mistakes
Even when servicers follow proper procedures, errors can occur during a mortgage transfer. Borrowers who notice issues such as incorrect loan balances, misapplied payments, or missing escrow funds should take immediate action.
The best approach is to submit a written request for information or a notice of error under RESPA. Servicers must acknowledge written disputes within five business days and respond within 30 business days. Including supporting documentation, such as payment confirmations or escrow statements, can help expedite resolution. If the servicer fails to correct the issue, borrowers can escalate complaints to the Consumer Financial Protection Bureau (CFPB) or seek legal assistance if necessary.