How to change your mortgage lender

A mortgage is a big commitment, so it’s important to make sure that you choose the right lender to get the best terms for your loan and the best possible customer service. If you’re not happy with your current lender, you can change your lender during the buying process or even after you finalize your loan.

We’ll cover when you might consider changing your mortgage lender, the pros and cons of doing so, and the steps you need to take to make the change.

When can you change your mortgage lender?

The good news is that you have the option to change your mortgage lender at almost any time.

If you’ve already started going through the process of applying for a loan, consumer protection laws give you the right to change your lender at any point before the mortgage is issued and loan servicing begins. If you’ve already gotten the loan, you can still change lenders by applying for a refinancing loan with a different lender, which can be a more involved process.

It’s important to make sure you understand the difference between a lender and a servicer. The lender is the bank or other entity that makes the loan. A loan servicer is the company that is responsible for sending you bills, managing escrow accounts, and receiving payments. In some cases, the lender and servicer may be the same. Usually, you can’t choose your loan servicer, but switching lenders can lead to a different servicer.

Reasons to consider switching mortgage lenders

There are a few reasons to consider changing your mortgage lender. Usually, these reasons relate to being unhappy with one or more aspects of your loan.

You want to get a better deal

One of the simplest reasons to consider changing mortgage lenders is that you want to get a better deal on your loan. For example, if you find another lender that offers lower closing costs or a better mortgage rate or APR, changing can make sense.

Because mortgages are involve such a large amount of money and last for such a long time, even small differences in interest rates can lead to huge savings over time. For example, imagine you apply for a $400,000 mortgage with a 30-year term.

At 6.5% interest, you’d pay $2,528.27 a month for a total of $910,177.95 overall. Drop the rate to 6%, and you’d pay $2,398.20 a month for a total of $863,352.76. That 0.5% interest rate difference saves you more than $100 a month and nearly $50,000 over the life of the loan.

You can use this mortgage calculator from Rocket Mortgage® to calculate how much you can save with a lower rate or different fees to help you decide if switching lenders makes sense.

You’re unhappy with your customer experience

Another reason to consider changing lenders is if you have a poor customer experience. For example, receiving poor service, having the lender lose documents, or not responding to your attempts to contact them are all frustrating experiences that could leave you looking for other options.

You might also want to change lenders if you feel that your lender hasn’t been transparent about something, such as the loan fees, or if the lender ultimately denies your loan.

If this is your reason for changing lenders, do some research and make sure you find a lender that has a good reputation for customer service.

Your lender sold your mortgage

Sometimes, after a lender originates your loan, the lender will sell it on the secondary market. In many cases, this isn’t a problem, but you may find that the company that buys and starts servicing your loan has poor customer service or is otherwise difficult to work with.

If that happens, you might want to change lenders. However, there’s always a chance that your next lender will sell your mortgage too, putting you back in the same position.

What are the disadvantages of changing mortgage lenders?

Before you try to change your mortgage lender, it’s important to consider the drawbacks of doing so.

Potentially longer loan timeline

The process of applying for, getting approved for, and receiving a mortgage can take quite a long time. It’s not unusual for it to take 30 to 45 days. In some cases, it can take as many as 60.

If you’re changing lenders while going through the process of buying a house, it will more than likely force you to extend the closing process. The seller may be willing to let you push the closing back but may ask you for compensation in the form of per diem charges, so you’ll need to keep that cost in mind. In other cases, the seller may opt to back out of the deal entirely.

New credit check

When you apply for a loan, the lender will run a credit check on you. This involves a hard pull on your credit, which usually drops your credit score by a few points. Changing lenders will mean a new credit pull, which means losing a few more points off your credit. If your score drops too far, it could mean higher interest rates and mortgage costs.

The good news is that most credit scoring models account for rate shopping, so if you have multiple hard pulls on your credit for a mortgage within a certain period, such as 30 days, your score won’t see a major negative impact.

New appraisal

Another key step when getting a mortgage is a home appraisal. Your lender will hire an expert to examine your home and determine its value to ensure that it’s worth enough to be adequate collateral for your loan.

If you switch lenders, the new lender may order another appraisal, which comes at a cost. A typical appraisal fee can run from $300 to $600, so keep that cost in mind when deciding whether changing lenders is worth it.

Potentially higher closing costs

When you get a loan, you’ll need to pay closing costs. These costs include things like origination fees, appraisal costs, attorney fees, credit reporting fees, and more. Fees can vary widely, from 2% to 5% of the loan amount.

When you change lenders, there’s a chance the lender will charge higher closing costs than the previous one. Before making the switch, be sure to get a quote for the closing costs and make sure that any savings on things like interest rates are not offset by the higher fees. Consider asking for a lender credit to help offset these costs.

You could also apply for a no-closing-cost loan, although they often come with higher interest rates.

What is the process to change mortgage lenders?

The process of changing mortgage lenders is much the same as the process you followed for choosing your first lender. Follow these steps.

1. Research and compare lenders. Look at things like the types of mortgages offered, interest rates, fees, and customer service reviews.
2. Get preapproved. Submit a preapproval application to make sure you’ll qualify and get a sense for what the terms and costs of the loan will be.
3. Work with the old lender(s) to cancel the application. If you’re in the process of buying a home, you should reach out to any other lenders you were working with to cancel your applications and pay any fees you have to pay. If you already have a loan and are refinancing, you can skip this step.
4. Contact the seller. If you’re changing lenders in the middle of the homebuying process, contact the seller and let them know what’s happening. Explain how it could impact the closing timeline and ask if they can be flexible. Your real estate agent can help you here.
5. Complete underwriting and close. Go through the underwriting process with your new lender and get approved for the loan. Finally, sit down and sign the paperwork to close on the loan.

FAQ

Changing your mortgage lender is a big step to take, so make sure to consider these questions before doing so.

Is changing mortgage lenders worth it?

Whether changing lenders is worth doing depends on why you’re making the change. Quantifying the value of good customer service is hard, but if you’re deeply unsatisfied with your old lender’s service, changing may be a good idea.

If you’re changing to try to save money, use a mortgage calculator to see how much money you can save with the new loan and make sure it’s more than you’ll wind up paying in fees to switch.

How much does it cost to change lenders through a refinance?

The primary cost of refinancing your mortgage comes in the form of the closing costs and other fees you pay for the loan. In some cases, your previous lender may charge an early repayment fee, though that is not very common.

Typical closing costs range from 2% to 5% of the loan amount, but you can negotiate with the lender to try to keep those costs down.

How many times can I switch mortgage lenders?

There is no true limit to the number of times you can switch lenders. So long as you find a new mortgage lender willing to approve your application, you can keep changing lenders.

Realistically, changing lenders costs money and impacts your credit score, so it isn’t something to do often. You should only switch lenders when it will save you a good amount of money.

Do I lose my earnest money deposit if I switch mortgage lenders?

When you make an offer to buy a home, you will give the seller earnest money to show that you’re serious about buying the property. In some cases, if you switch lenders, you may have to forfeit the deposit because changing lenders could delay closing or violate the purchase agreement. If you think you might want to switch lenders during the home buying process, discuss this with your real estate agent or a real estate attorney before signing a purchase agreement to see if there are ways for you to avoid losing your earnest money if you switch lenders.

What are alternatives to switching mortgage lenders?

In some cases, you may not need to change lenders to accomplish your goals. You can always reach out to your current lender to see if they can adjust the terms of your loan or handle escalating customer service problems.

For example, you can ask your lender for a loan modification to change your loan’s interest rate or term, which you usually’d have to refinance your loan to do.

The bottom line: Decide whether changing mortgage lenders is the right move

If you’re unhappy with your current mortgage lender, you have the option to change the lender you’re working with. You can do this during the homebuying process by finding a new lender and applying for a loan, or after you’ve bought a home by refinancing.

Before you switch lenders, consider the costs and effort involved and make sure that you’re getting more out of the deal, either in savings from a lower interest rate or fewer headaches from better customer support, than you’re paying.

If you’re ready to explore your options, you can reach out to Rocket Mortgage® to see what you qualify for.