How (And When) To Change Your Mortgage Lender

While the home buying process can feel stressful and overwhelming, it’s important to know what options you have available to you along the way. One of those options is the ability to change your lender while obtaining a mortgage loan.

Can You Change Your Mortgage Lender?

Yes, you can 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, a common question remains: "Can I switch mortgage 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 three common reasons for considering a switch: a better home loan offer, a bad customer experience from your old lender or your lender selling your mortgage.

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 annual percentage rate (APR).

By assessing all of the costs, you can determine if you’ll actually save money on your new mortgage.

The home buying process isn’t always easy to navigate, so 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.

Your Mortgage Lender Sold Your Mortgage

Many mortgage lenders specialize in originating mortgages and are not mortgage servicers. By selling your mortgage, your mortgage lender is selling the servicing rights to your mortgage to another company and will notify you if they have done so. This is commonly done as part of the secondary mortgage market.

Without warning, receiving a notification that your mortgage has been sold can be alarming, leading to distrust with your current mortgage lender. Ultimately, you may choose to switch lenders from this abrupt shift.

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 the Federal Housing Administration (FHA) has a 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 Lead To A Longer Loan Timeline

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.

You May Pay Higher Closing Costs

At first glance, a lower interest rate can make it seem like switching to a new lender will be more cost-effective. However, a new lender may charge higher or additional fees compared to your original lender, completely offsetting the benefits of the lower interest rate.

You May Need To Pay The Seller A Per Diem

If changing lenders pushes your loan closing date out, you must negotiate this change with the seller. Some sellers may ask for compensation for this delay, often in the form of a per diem charge.

A per diem charge is a daily fee paid to the seller until the loan is finally closed, leading to another recurring fee on top of any other fees acquired from switching mortgage lenders. If you know that switching lenders will incur per diem charges, calculating the total per diem interest will be important to determine if it’s worth it.

Can You Change Lenders After Closing?

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

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 if they don’t also service mortgages. The only way to change mortgage loan servicers is to take the steps toward refinancing your mortgage. Keep in mind that refinancing comes with additional costs.

Can You Switch Mortgage Lenders Before Closing?

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

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 lenders.

What’s the difference between a mortgage lender and mortgage servicer?

Mortgage lenders and servicers provide distinct roles in the mortgage loan process.

The lender assesses your creditworthiness and the entire application and origination process. Once your loan has been issued, the mortgage servicer takes over the management of the loan, collecting payments and making any necessary modifications, like handling a foreclosure.

Typically, the lender is the one involved upfront, with the servicer handling ongoing management of the loan. When finalizing the mortgage loan process, read the fine print to see if your lender and servicer are the same or different entities entirely.

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 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 Change Lenders

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.

Get started on the refinance process today with Rocket Mortgage.