You’ve found a home that you’ve put an offer on, and have secured a lender to provide you with the mortgage you need to finance the place.
Somewhere down the line, you decide that you’d like to look elsewhere for financing. Is it too late to make the switch before you close on the property? Or is this relationship written in stone?
Good news. If you act quickly enough, you just might have enough time to switch lenders.
Why Change Lenders in the First Place?
There could be all sorts of reasons why you might have a change of heart when it comes to working with the lender you originally chose.
Delays – This is probably the biggest reason why homebuyers decide to pull the plug on their original mortgage lender and switch to another. If you’re experiencing nothing but delay after delay when finalizing your mortgage, it might be a good idea to find someone else who works in a more timely manner.
Rate changes during the process – Ever heard of ‘bait-and-switch?’ Well, it happens sometimes in the world of mortgage lending. Some lending companies attract new clients by advertising one interest rate, then hiking it up once the borrower is a lot deeper into the mortgage process. That’s a good reason to bail on a lender and work with a more reputable and honest one.
Better deal elsewhere – Maybe you came across a lending company that is offering a lower rate and better terms than the lender you’re currently working with. That’s a pretty popular reason why many borrowers end up making a switch before closing. Even a fraction of a percent off interest rates can mean huge savings on your overall mortgage payments.
You don’t have to worry about losing money by making the switch, for the most part. Your original loan officer won’t be getting a commission if the loan doesn’t actually close. And even if you’ve already paid for an appraisal or spent some money on small fees, your new lender most likely will reimburse you for those costs.
What Are the Typical Closing Time Frames Like?
In the past, 30-day closings were the norm. Now the opposite is true. While there are a number of factors that could influence how fast it takes for your loan to close, you can expect a typical escrow to take anywhere between 40 and 60 days to close.
While 40 days might be the average, any delay from that point forward can throw a wrench in your deal. That’s why it’s important to make sure you’ve got all your bases covered before moving on to a different lender. Gather your entire loan package – including the income, asset, credit, and employment documents from your previous mortgage lender – and forward all of it onto your new lender.
Communicate the New Lender Info to Necessary Parties
The seller will need to be informed of your change in lenders if the terms of the loan that you’re getting now differ from the previous terms that were originally outlined on the purchase agreement. The majority of purchase contracts require that homebuyers stipulate the type of loan they’re getting, the interest rate, and other important loan terms.
Even if all these terms remain the same with your new lender, the seller will still need to know the contact information of the new lender, which the seller’s lawyer will request. The escrow holder will also need to be updated on the new lender’s contact info. Make sure you use a contract addendum form to communicate these changes, and get the sellers to sign off on these changes before you send the addendum to the escrow holder.
What Obstacles Could Arise By Choosing to Switch Lenders in the Middle of Closing?
Keep in mind that there’s always a chance of a hurdle or two to overcome when switching lenders before closing. For instance, if the seller is nit-picky about the situation, he or she may ask you to prove that you’ll be able to close on a loan before the 40 days are up. The seller can even back out of the deal if you aren’t able to convince him or her that the deal will be done when you say so.
The majority of homebuyers include a financing clause in the contract and a date that the condition must be fulfilled. By taking this loan contingency out, you’re basically removing the loan as a condition for closing, and are committing to buying the home whether or not you get approved for a loan.
The seller may also choose to impose a per diem if you decide to change lenders. A per diem is basically a penalty charge for every day that you go over the stipulated deadlines, and can range from hundreds to even thousands of dollars. A contract addendum will outline any per diem terms if they exist. While the average contract doesn’t require a per diem, a seller might decide to use it get you moving in the loan department.
While it could make things a bit more complicated, it’s still possible to switch lenders before closing, especially if you have good reason for the move. Once again, your real estate agent can be an invaluable source of guidance when it comes to choosing the right lender with a good reputation in the first place so you don’t wind up having to jump through hoops to get the deal done.