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How (And When) To Change Your Mortgage Lender

Ashley Kilroy3-minute read

September 17, 2021

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Can You Change Your Mortgage Lender?

Borrowers are safeguarded under consumer protection laws that allow them to walk away from any loan before it is issued. However, once the loan is issued, they will not simply transfer the mortgage to a different lender.

For those at different stages in the home buying process, the question top-of-mind may be "Can I switch lenders before closing or during underwriting”? To put it simply, prospective home buyers are free to change mortgage lenders at any point in the home shopping process before service begins. Once mortgage servicing or repayment of the mortgage begins, the only way to change mortgage servicers is to refinance the mortgage.

When Might You Consider Changing Mortgage Lenders?

There are two common reasons for considering a switch: a better home loan offer or a bad customer experience from your old lender.

You Might Get A Better Deal

Typically, the reason for a switch is that interest rates have changed, and a borrower wants to receive a rate lower than the original lender offered. But before moving ahead with lower mortgage rates, it’s important to ensure that you’re considering all the loan costs disclosed in the APR. By assessing all costs, you can determine if you’ll actually save money on your new mortgage.

The home buying process isn’t always easy to navigate. Therefore, you should take the time to understand your rates and associated costs before closing on a mortgage. This will help avoid any confusion down the road if you find a better mortgage rate or choose to refinance.

 

You Are Dissatisfied With Your Customer Experience

Another reason for changing your mortgage lender might include poor customer service. Poor customer service might cause unnecessary or unexplained delays, unresponsiveness, lost documents or too many changes in your contact within the lender’s organization.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

What Is The Process To Change Lenders?

Before changing lenders, you must get your mortgage preapproved by your new lender. This step is relatively quick and is usually completed before the offer is made. If you already have a mortgage, you will have gone through a preapproval at least once before. You will need to repeat this process if you decide to change lenders.

When looking for a new mortgage lender, be transparent about the reasons for the change with your real estate agent and the home seller. Sellers may become suspicious of your ability to get a mortgage if they don’t hear about the change from you directly. Additionally, provide a new preapproval letter to your real estate agent, if one is involved, in your change of lenders.

The home seller might become alarmed if you’re switching from a conventional to an FHA loan because of the FHA’s stricter appraisal process. Ultimately, be transparent about your intentions to the sellers and communicate early and often.

What Are The Disadvantages Of Changing Mortgage Lenders?

There are always some inherent risks in any decision you make in the home buying process, and changing lenders is no different.

Lender Changes May Cause Delays In Closing Time

The only real risk when changing lenders after your offer has been accepted is that it might make it difficult to close on time. If the sellers want to close quickly, any delay might jeopardize the sale, especially if the desire to switch comes later in the process.

A New Lender Means A New Credit Check

Lenders often use a hard inquiry to check your credit, which may lower your credit score temporarily. Switching to another lender will mean another hard inquiry, which might lower your credit score and increase the new mortgage cost.

You Might Need To Get A New Appraisal

If the first lender you chose to work with has already conducted the appraisal, but the new lender doesn’t work with the appraiser used, you may need to pay for a whole new appraisal. A new appraisal will be an additional cost to you and is worth considering before choosing to work with a new lender.

Can You Change Lenders After Closing?

Rocket Mortgage® services the majority of loans that we close.

Some lenders may sell the borrower’s mortgage to an investor or other mortgage servicer immediately after closing. This frees up their capital and keeps their funds liquid. As a borrower, you might have been satisfied with your lender and the service they provided, and you might be disappointed to learn that you won’t continue working with them after the mortgage is sold. The only way to change servicers is to take the steps toward refinancing your mortgage. Keep in mind that refinancing comes with additional costs.

Other FAQs About Changing Your Mortgage Lender

There are a handful of other pertinent questions you may also be asking regarding when you’re able to switch your mortgage lender. It’s important to ensure you have all necessary information before deciding if you can (and should) switch mortgage lenders.

When is it too late to change mortgage lenders?

There is no right or wrong time to change your mortgage lender, and it’s really never too late to do so. However, you have to understand that refinancing is the only option if you want to change mortgage lenders after servicing begins. No matter where you are in the home buying or owning process, it’s always a good idea to consider the risks and benefits before following through. Changing your mortgage lender is a big commitment and could have an effect on your credit score and finances, so carefully consider if this is the best time to make this happen.

Can you switch lenders before closing?

Switching lenders before closing, while possible, can cause delays in the overall process and could lead to a change in your closing costs. Changing lenders before closing may also require a new appraisal and credit check. However, it can result in a better deal and increased customer satisfaction.

Can you switch lenders during underwriting?

Switching lenders during underwriting has become increasingly common, but again may cause delays in the closing process and require a new appraisal and credit check, depending on the lender. Do your research and ensure that this is the right time for you to switch.

The Bottom Line: It Might Be Worth It To Make A Change

If you want to change your mortgage lender, the first step is to get another preapproval. It’s important to understand the costs associated with changing lenders, including appraisal fees. Remember, the only way to change your lender after your mortgage has been serviced is to refinance your mortgage.

You can learn more about the home buying process in our Learning Center. There, you will find several resources about buying your first home, refinancing and more.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

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Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.