Are you thinking of switching lenders before you close on your loan? Maybe you are unhappy with the service you are receiving or the loan program isn’t quite what you thought. While you can switch lenders before you close on a loan, there are a few things you should consider.
Your Credit Might Suffer
If you’ve already gotten through a good portion of the underwriting process with your current lender, it’s quite certain that they’ve pulled your credit already. This means your credit report has a new inquiry on it, which can cost you as much as 5 points. While this might not seem like a big deal, if you are close to the minimum credit score requirement as it is, the deduction could cause you to lose your ability to find a new lender.
If you switch lenders in a short enough time period, though, you may be able to get away with the one inquiry rule. The credit bureaus recognize that borrowers rate shop to find the best loan for their needs. If you have several lenders pull your credit within a 30 -45 day time period, you usually only get hit with one inquiry.
You May Owe Fees
Lenders incur certain fees when they start processing your loan. Some lenders even charge an application fee, in the event that you do decide to switch lenders. The lender at least ensures that they will receive some payment for the time spent on your loan.
Make sure you read the fine print of the disclosures you receive within three business days of your application. Does the lender charge an application fee? If so, how much is it? They may also hold you responsible for any third-party fees incurred, such as the credit report fee. If you’ve already had an appraisal completed, you’ll also owe money for that service. The lender isn’t going to cover these costs – they are your responsibility.
The Appraisal May Not Transfer
Perhaps one of the largest issues is the appraisal. If you’ve already had one done, you have to inquire about its portability. Technically, the appraisal is done for the lender, so it’s in your original lender’s name. If for some reason you decide to change lenders, you will have to ask your current lender to transfer the appraisal over to the new lender. This may or may not happen.
Even if your current lender does transfer the appraisal, it may not work for the program at the new lender. Each lender has their own requirements. If the current appraisal doesn’t meet those requirements, you may need to pay for an update or pay for an entirely new appraisal. It’s worth asking the new lender upfront what they require for the appraisal and if they can accept a transferred appraisal.
Will you Close on Time?
If you are buying a home, you probably have a contracted closing date you must meet. If you change lenders, you could put yourself behind. If the new lender cannot meet the closing date requirements, you could find yourself in a bind. Because the closing date is part of the contractual agreement, there could be penalties for not closing on time.
What Will it Cost?
Finally, you should give very careful consideration to the costs of the loan. Of course, you’ll want to know the interest rate. Chances are that you wouldn’t change lenders if the new interest rate were much higher than the one you had with the original lender.
Don’t forget about the closing costs, though. They can really add up and make a difference in the outcome of your loan. Before you make the commitment to change lenders, ask the new lender for a Loan Estimate. This will help you see how much the loan will cost. You can compare it to your current loan and use it as a factor in making your decision.
Switching lenders isn’t impossible, but it is a complicated process. The earlier in the loan process that you decide to switch, the easier it may be on you. Make sure you look at all of the factors affected if you do decide to switch lenders to make sure that it will work in your benefit.