Can you change mortgage lenders?

When can you change your mortgage lender?

The good news is that you can change your mortgage lender at almost any time. The way it works and the potential costs involved depend on which part of the mortgage process you're in when you make the change.

Can you switch lenders after preapproval?

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. Mortgage preapproval is a conditional offer, not a binding contract, and borrowers generally remain free to choose another lender before closing.

At the preapproval stage, you have maximum flexibility. Financial experts recommend gathering preapprovals from multiple lenders so you can confidently compare Loan Estimates before making a final commitment.

Can you switch lenders before closing?

You have the legal right to change lenders at any point before you sign your final closing documents. However, the longer you wait in the process to make the switch, the more complicated it becomes. Starting a new application with a different lender means the new lender will typically need to conduct its own underwriting review. This can extend your closing timeline and may increase your up-front costs if new fees or a second appraisal are required.

Can you switch lenders while under contract?

You can switch mortgage lenders while under contract, but it can come with consequences. When you are under contract, you have agreed to a strict closing date with the home seller.

Because a new lender might need to restart the underwriting process, your closing date will likely be delayed. You must ensure the seller is flexible enough to agree to a formal contract extension. Otherwise, you could face severe penalties that affect your financing contingencies and your earnest money deposit.

When is it too late to change mortgage lenders?

Technically, it is only too late once you have signed the final closing documents and the loan has been funded. However, switching within a week or two of your scheduled closing date can be very risky. A new lender may not have enough time to complete the loan underwriting before your deadline expires.

Can you change mortgage lenders after closing?

Once a loan is finalized and closed, you cannot swap or transfer that specific loan to another company. If you want to change lenders after closing, you’ll have to refinance. Refinancing means applying for a new mortgage with a different lender. This new loan replaces your mortgage and also includes closing costs.

Mortgage lender vs. loan servicer: Why the difference matters

It's important to 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.

Can you change mortgage companies without refinancing?

No. A borrower cannot simply swap a finalized loan to another company. After closing, you generally cannot transfer your existing mortgage to another lender simply because you prefer a different company. If you want a different lender to own your loan, you'll typically need to refinance into a new mortgage. While your loan servicer manages billing and payments, the owner or investor in the loan ultimately owns the debt.

What if your lender sold your mortgage?

It is very common for original lenders to sell the servicing rights of a mortgage to a different financial institution shortly after closing. If your lender sold your mortgage, rest assured that federal law dictates that your original interest rate, your monthly principal and interest payment, and your core loan terms must stay exactly the same. You’ll be notified in advance when you’ll need to begin making payments to your new servicer.

Reasons to consider switching lenders

Let’s go over some of the most common reasons that borrowers decide to switch to a different lender.

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 involve such large amounts of money and last for so long, 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.

For example, imagine you are taking out a 30-year fixed-rate mortgage for $400,000.

• At a 7.0% interest rate, your monthly principal and interest payment is roughly $2,661.
• At a 6.5% interest rate, your monthly principal and interest payment drops to roughly $2,528.

That 0.5% difference saves you $133 every single month. Over the 30-year life of the loan, that lower rate saves you nearly $48,000 in total interest.

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 the customer service

Another reason to consider changing lenders is a poor customer service experience. For example, if the lender has made errors with your payments and hasn’t been responsive or helpful in resolving the issue, it may make sense to work with a different one. When a lender doesn’t respond to your attempts to contact them, it can be a frustrating experience 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 loan fees. Before choosing a lender, do some research and find one with 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 change your mortgage lender, it’s important to consider the drawbacks of doing so.

Potentially longer loan timeline

The process of applying for a mortgage typically takes between 30 and 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.

Financing-contingency and earnest-money risks

If switching lenders causes major delays that extend beyond the closing date stated in your purchase agreement, the seller could legally walk away from the deal. If your financing contingency has already expired, you could lose your entire earnest money deposit. It’s a good idea for borrowers to discuss the purchase agreement, financing contingency, and earnest money agreement with a real estate agent or a qualified real estate attorney before switching lenders.

New credit check

Every time you apply for a new mortgage, the lender must perform a hard credit pull to verify your financial standing. However, multiple inquiries within a short shopping window are often grouped together by scoring models as one hard credit check. That’s why it’s a good idea to shop around for new mortgage quotes within the same 45-day window to minimize the ding to your credit.

New appraisal

Appraisals are required if you’re applying for a mortgage or refinancing. If you switch lenders before closing, the new lender will likely require you to order another professional appraisal to ensure the home's value matches the loan amount. This means you will have to pay another appraisal fee, which typically ranges from $300 to $1,000.

Potential application fee

Some lenders charge a non-refundable application or processing fee upfront when you begin the underwriting process. If you walk away from your first lender, you will likely lose that initial fee and may have to pay a new one to your second lender.

Potentially higher closing costs

When you get a new loan, you’ll need to pay closing costs. These costs include origination fees, appraisal fees, attorney fees, credit reporting fees, and more. Closing costs for a refinance typically range from 3% to 6% 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, get a quote for closing costs and ensure that any savings on interest rates are not offset by 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 to get a sense of the loan's terms and costs.
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

Here are answers to some frequently asked questions about changing your lender.

At what point can I switch mortgage lenders?

You can freely switch lenders at any point before you sign your final closing documents, though doing so late in the process risks delaying your closing. After your loan is officially closed, you'll need to refinance to switch lenders.

Is there a penalty for switching mortgage lenders?

There is usually no official penalty fee for withdrawing an application before closing. However, your actual costs may include losing non-refundable application and appraisal fees paid to the first lender, facing seller-imposed fees for delaying the closing, or paying hefty refinance closing costs if you switch after you own the home.

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

The primary cost of refinancing your mortgage is 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 3% to 6% of the loan amount, but you can negotiate with the lender to try to keep those costs down.

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

You might. If switching lenders causes a delay that pushes you past your agreed-upon closing date and the seller refuses an extension, or if your financing contingency has expired, the seller may have the legal right to cancel the contract and keep your earnest money deposit.

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

Changing your mortgage lender can be a savvy move if you can get a significantly lower interest rate, secure lower closing costs, or need better customer service. Keep in mind that while you can restart an application with a new lender before closing, you must undergo a complete, potentially costly refinance to switch lenders after your loan is finalized.

Before you switch while under contract, you should weigh the potential long-term savings against the very real risks of missing your closing date, paying for duplicate appraisals, and forfeiting your earnest money deposit.

If you’re ready to refinance, start an application with Rocket Mortgage today.