How to Change Your Mortgage Lender

You may want to change your mortgage lender before or after you purchase

Fact checked by Betsy PetrickFact checked by Betsy Petrick

You can change mortgage companies for your home loan either before a home purchase closes or afterward through a refinancing. However, if you are considering switching lenders, you should review the pros and cons to determine if this is the right strategy for you.

Learn more about the process of changing mortgage companies.

Key Takeaways

• You can change mortgage companies before closing on a home purchase or through a refinancing afterward.
• Switching from one lender to another might result in benefits such as a lower interest rate.
• One potential disadvantage of changing mortgage companies is a possible delay in closing the home purchase.

Why Change Your Mortgage Lender?

You can change your mortgage lender during the purchase process or after you’ve bought your home for any reason. But keep in mind that changing lenders is not as simple as moving your mortgage from one lender to another like you can move funds from one bank account to another. Although switching to another mortgage lender might require several steps, you may save money in the long run.

Here are four reasons that you might want to change your mortgage company before you’ve closed on the purchase of your home:

1. A better interest rate: As you’re waiting for the loan to close, you might notice that another mortgage lender is offering a lower interest rate. In this case, it may be worthwhile to switch if the lower interest rate will significantly reduce the amount of interest you’d pay.
2. Better terms: Perhaps the lender you’ve chosen offers only 15- and 30-year mortgage terms. But you’ve now found a lender that offers a 20-year mortgage term, which you prefer. As a result, you might move your mortgage to the new lender before the deal with your original lender is finalized.
3. Reduced expenses: So, you’re scanning various mortgage offers online and locate a lender that has fees that are lower than the ones your current lender is charging. If you calculate that you could save a substantial amount with a new mortgage lender, it might make sense to change.
4. You’re unhappy with the lender: Perhaps your current lender has a slow mortgage process. Or maybe the lender constantly loses paperwork. Dissatisfaction with the customer service at your current lender might prompt you to hop over to another lender.

Refinancing Your Mortgage With a Different Lender

You can switch to a different mortgage lender after you’ve closed on your home purchase. One reason you may want to do that is to get a lower interest rate and save money in interest over time with a new loan. Or you might want to get a new mortgage to tap into your home equity with a cash-out refinance loan.

A refinance might be a good idea in some situations, but not others. Calculate the various costs associated with refinancing against what you would save.

How Do You Change Your Mortgage Lender?

If you decide to change your mortgage lender before you’ve closed on a home purchase, follow these steps:

• Notify your current lender that you’re moving to a different lender.
• Inform your real estate agent and the seller about the pending switch.
• Get pre-approval from a new lender.
• Provide the pre-approval letter to your real estate agent.
• Prepare to go through the same steps as you did with the lender you’re leaving. This will include filling out a new application, undergoing a new credit check, and providing various documents.

Now, if you’re refinancing your mortgage with a different lender, the process will be a lot like the one you completed for your original mortgage. For example, you’ll decide which type of loan to take out, such as a traditional refinance mortgage or a cash-out refinance mortgage. In addition, you’ll need to:

• Collect documents like recent tax returns and bank statements.
• Submit an application.
• Undergo a review of your credit score, income, debts, and assets.
• Lock in the interest rate.
• Complete the underwriting process, which involves lending professionals checking all the mortgage details.
• Get ready for a home appraisal.
• Close on the refinance mortgage.

Disadvantages of Changing Your Mortgage Lender

Changing your mortgage lender may come with a number of potential benefits. However, it typically includes disadvantages as well. Here are several possible disadvantages.

Delays in Closing

Switching to a different lender could delay closing on the home purchase. This might even lead to the seller canceling the deal.

New Credit Check

When you change your mortgage lender, you’ll go through another credit check. This inquiry will remain on your credit report for two years and likely will cause a temporary dip in your credit score.

Higher Interest Rate

Moving to a new mortgage lender might mean a higher, rather than lower, interest rate. So if you’re changing lenders due to dissatisfaction with customer service, for example, be sure it’s worth paying a potentially higher interest rate.

Increased Closing Costs

Changing to a different mortgage lender might result in more closing costs. Weigh any extra expenses against the benefits you will gain by changing mortgage companies.

New Home Appraisal

Your current lender may have already ordered a home appraisal, but the new lender might not accept it. If that’s the case, you may be forced to pay for another home appraisal.

How Do I Switch to a Different Mortgage company?

Switching to a different mortgage company involves finding a new lender, seeking pre-approval for a new loan, and going through a credit check, among other steps.

Can You Switch Mortgage Lenders Before Closing?

You can switch mortgage lenders before closing on a home purchase, but the move could come at a cost. For example, you could get a higher interest rate, increased closing costs, or a delay in closing the deal.

Can I Switch Mortgage Companies Without Refinancing?

You can switch mortgage companies without refinancing only before the home purchase closes. After that, you can change to a different lender through a refinancing.

What Does ‘Porting’ a Mortgage Mean?

“Porting” a mortgage means transferring a mortgage from one home to another. That way, you can keep your original loan terms, including your interest rate, and apply it to a loan for a new property. In some cases, you could use this strategy when you are selling your home and buying a new one at the same time.

The Bottom Line

Changing mortgage companies—either before or after closing on your home purchase—can potentially pay off with a lower interest rate or lower closing costs. But before you decide to make the switch, carefully weigh the pros and cons. In the end, moving to a different lender could cause more disadvantages than advantages if you don’t approach this decision with caution. Consider consulting a professional financial advisor for more guidance on your situation.

Read the original article on Investopedia.