Changing Midstream

There’s nothing wrong with changing your mind. It happens all the time. Even if someone spent a considerable amount of time evaluating a situation and coming to a conclusion, sometimes things change during the course of events and the original plan must be scrapped. That can happen with a mortgage application as well; but when changing lenders midstream, there are many things to consider!

Ultimately, a home buyer should be done shopping for their mortgage by the time they make an offer and supply sellers with their PreApproval Commitment Letter. Many times a listing agent takes their client’s home off the market because that buyer had a solid pre-approval from a solid lender. In this market it’s not only about the highest price someone is willing to pay, it’s more about the offer that has the best plan of action to close!

Now, if that buyer switches lenders after contracting, that loan could be an entirely different plan over what they “contracted” under.  And, if that buyer switches lenders instantly after contracting, it’s a red flag! Buyers need to have their mortgage shopping done by the time they make any offer.  A fast switch almost always means that buyer didn’t harness down a mortgage plan.  And, they are now starting that mortgage process after the home was pulled from the market. That’s backwards and there is no plan in play.

Next would be to find out “why” the loan needs to be transferred to another lender. When a borrower applies for a mortgage and begins submitting their documentation to their lender, sometimes things go wrong. For example, a common occurrence is when borrowers fail to mention they have a side business, or consulting income in addition to their full time job. There’s nothing wrong with this but what if the side business reported a loss on their income tax return? When that happens, lenders subtract the business loss from the borrower’s overall income, possibly resulting in declining the loan.

As a loan is reviewed and found to no longer qualify, it’s okay to change lenders as long as the buyers have the assurance from the new lender that the loan can indeed be approved. For example, one lender can have a strict debt-to-income ratio requirement while another is a bit more flexible on the very same loan program.  However, this should be worked out way before making any offer on a home. Asking a seller to take their home off the market without fully deciding on your lender is un-sound!  Get the shopping over with, and then proceed to contract.

Changing lenders midstream is only a good thing if a lender can approve a loan when another cannot. Note however, this event is rare as mortgage companies today underwrite to similar approval guidelines.  Interest rates can always be manipulated in many ways to “look better,” so rate is not a sound reason to switch first or last minute.  Anyone can offer a lower rate, but lowest rate typically always means longest turn times! That may lead to rate extension costs, making that deal less attractive when it’s really too late to switch, or switch back!

Lastly, is there time to change lenders midstream, even if it’s during attorney review? If a loan is approved at one lender, does it make sense to transfer to another? A mortgage application can’t simply be transferred from one mortgage company to the next and a whole new set of documentation will be required from a new title report, almost always a brand new appraisal and definitely new loan disclosures required by the new lender. Changing lenders during the escrow process can happen, but the reasons for the transfer need to be identified and evaluated. Coaching stronger from the start will help eliminate any chance of delay.  And, the start is prior to showing clients multiple homes.

 

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