Changing Lenders During The Mortgage Process

This guide covers changing lenders during the mortgage process. We will discuss changing lenders during the mortgage process and still closing your home loan on time. When homebuyers apply for a home loan, a mortgage loan originator will see whether or not the mortgage is a doable deal. By analyzing and reviewing the income and credit documents of the borrower, the loan originator can tell whether or not the mortgage application will get approved. John Strange, a senior mortgage loan originator at Mortgage Lenders for Bad Credit, says the following about changing lenders during the mortgage process:. 

What happens if the borrower does not get along with the mortgage loan originator and the lender? Changing lenders is definitely an option. Borrowers can change lenders during the mortgage process and still close on time.

In most cases, borrowers should have no problem getting a mortgage loan approval after changing lenders. The mortgage loan eventually gets clear to close and closes as long as the borrower meets all the mortgage guidelines. In the following paragraphs, we will cover changing lenders during the mortgage process and closing on time. While changing lenders at any point in the mortgage process is acceptable, it is not always a seamless decision. It is likely that what stage you are currently at in the process and the reason for wanting to switch trade-offs influence the trade-offs you need to make. Below is an overview to summarize the entire process better.

changing lenders during the mortgage process?

Before signing the loan documents, you can switch lenders before closing. You can legally not be held to a contract until the documents are signed. This gives you freedom and flexibility if you have spent money on services like an appraisal or application fee, as those do not bind you and are only a sunk cost.

Common Reasons For changing lenders

Changing lenders is frequently done due to better services in rate or terms, as one lender might offer better interest rates, fees, or even better loan products. Other than that, inadequate customer service from a lender can also be the reason to switch.

Other lenders’ issues with properly approving loans are also a main cause, such as using easier standards for underwriting eligibility. Switching and the expiration of rate locks could be beneficial if rates are rising.

Things To Consider changing lenders during the mortgage process

While switching can open new doors, it does bring new application requirements, such as documents, a new credit pull, and underwriting, meaning those under deadlines can run into issues.

• Costs: Expenses like appraisal fees or application costs are nonrefundable and associated with the file. You may incur those losses and pay again through the new lender.
• Credit Impact: A new lender will likely conduct another hard inquiry, which may negatively impact your credit score (5-10 points, short-term effect).
• Documentation: You must submit all documents again (pay slips, bank extracts, etc.), which may be frustrating.
• Rate Locks: If you had previously obtained a good rate from the original lender, the new lender may have shifted market rates and will not offer matching rates.

How to Do It

• Shop Around Silently: Seek quotes from different lenders without making formal changes. Check APRs (not just the rates) to capture the total cost.
• Inform Your Existing Lender: You don’t owe them an explanation, but if you’re far along, they may attempt to keep you through counter offers.
• Commence Application With New Lender: Be sure to apply with the new lender and notify your realtor or closing attorney to change their direction towards the new lender.

When It’s a Bad Idea.

If you’re days away from closing, the switch will likely cause everything to collapse. Sellers will not extend deadlines. The burden may outweigh the benefit if the new lender’s proposal does not improve significantly.

Pro Tip changing lenders during the mortgage process

Consider chatting with your lender before making any sudden moves. Inform them that you are looking at other offers and ask if they’d be willing to match a rival’s offer. They may change fees or terms to attract and retain your business. By all means, consider your money and house, but do not feel trapped. Analyze the available options in light of your goals and deadlines.

The Importance of Lender Overlays of the Mortgage Company

The mortgage loan officer will check to see if the lender has any overlays. If they do, they will make sure that the borrowers meet the mortgage company’s overlay requirements. However, there are times when the mortgage underwriter will nitpick the mortgage application during the mortgage process. They may even deny the mortgage, and borrowers may be forced to take their loan application to another lender.

Changing Lenders During Mortgage Process To a Different Lender

Borrowers are working with a mortgage broker; the broker can easily transfer mortgage applications to another lender. Borrowers who are working with a bank or mortgage banker can transfer their mortgage application to another mortgage lender without too much red tape. We will discuss changing lenders during the mortgage process and how simple the processing of changing lenders during the mortgage process is, especially with FHA loans.

Case Scenarios Changing Lenders During Mortgage Process

Borrowers denied by a lender or stressed out during the mortgage process can easily transfer their mortgage loan file to another lender. Changing lenders during the mortgage process is done all the time. Mortgage Lenders for Bad Credit can easily assist with the process in helping borrowers. Borrowers plan on changing lenders during the mortgage process with an FHA loan. FHA borrowers who already have an FHA appraisal completed do not need a new appraisal. The FHA appraisal transfers with the FHA case number. I recently closed an FHA loan where a borrower was stressing with a lender for over three months. Mortgage Lenders for Bad Credit closed it in two weeks.

Reasons For Stress During Mortgage Process

There should not be any reasons for last-minute mortgage loan denials or stress during the mortgage process. Unfortunately, there are reasons why borrowers’ mortgage loan applications can be denied after they were told they were pre-approved by their mortgage. If the mortgage underwriter sees that the borrower’s debt-to-income ratio is higher than what the mortgage loan originator has qualified them for. The mortgage lender has a cap on the debt-to-income ratio; due to their overlays, the mortgage loan can get denied.

Stress and Issues During the Mortgage Process

Another issue where mortgage loan applications can get denied is if the mortgage company has its own appraisal review process. Mortgage underwriters reduce the appraisal to a lower value. If sellers will not cooperate with lower appraised values, it can kill the deal. Other cases where mortgage loans can get denied are if the underwriter asks for an updated bank statement and they notice that you had a recent overdraft.

Bank Overdrafts Can Be a Mortgage Denial With Some Lenders

Some lenders will not accept overdrafts. More cases can be where overtime income used in pre-qualification can no longer be used. This is because the underwriter does not feel, in his or her opinion, that overtime income will continue. There are dozens of more reasons why mortgage loans get denied during the underwriting process. There are often times when changing lenders will be necessary.

Mortgage Bankers Versus Mortgage Brokers

As a mortgage broker, I have dozens of wholesale mortgage lenders to choose from. There have been cases where I have taken my client’s mortgage application somewhere else because the current wholesale mortgage lender was totally incompetent and has come up with new overlays and did not honor what they told me during the mortgage pre-qualification process. When changing lenders during the underwriting process happens, there are a few inconveniences on both the mortgage loan originator’s part and the borrower’s part.

Delays Caused By Changing Mortgage Lenders During Mortgage Process

Sometimes changing mortgage lenders during the mortgage process is necessary, but in most cases, it works out for the best. The maximum delay normally incurred after changing mortgage lenders during the mortgage process is a week. A new mortgage application needs to be completed and signed, which does not take too long and can be done in a few hours. If it is an FHA appraisal, it takes a day to do the FHA appraisal transfer and normally does not cost any money.

Issues with Appraisal Transfer on Conventional Loans When Changing Lenders During Mortgage Process

If it is a conventional loan, we can request a new appraisal with the new lender’s name on it and request a transfer, which might take a few days. All of the documents, such as tax returns, W-2s, and bank statements, can be resubmitted to the new wholesale lender. Once the new lender has the complete mortgage application along with the required documents and credit report, we can normally get approval within 24 hours. Once we get approval, we can satisfy conditions and satisfy them within 48 hours and get a clear to close.

Changing Lenders During Mortgage Process When Denied For Loan

Borrowers whose mortgage loan was denied or whose current mortgage lender is dragging their feet, please contact us at Mortgage Lenders for Bad Credit as soon as possible at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Mortgage Lenders for Bad Credit is available 7 days; you can text us at 800-900-8569 for a faster response. If you already have an appraisal, we can most likely get the mortgage loan closed in 14 days or less, depending on each particular circumstance.