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Top 3 Reasons to Avoid Changing Mortgage Lenders

Working with a mortgage lender isn’t always easy. Some of their decisions might even annoy you. For example, if your lender keeps pushing back your closing date or changing your loan terms, you may be wondering whether it’s okay to jump ship. While you can change mortgage lenders at the last minute, here are three reasons why doing so could cause some problems.

1. Switching Lenders Could Throw Off  Your Timing

If you’re already a month into your mortgage underwriting process, deciding to change lenders could prevent you from signing off on your loan by the deadline you initially had in mind. That could be an issue if the person who’s selling you a house is ready to move on.

Adding another 30 or 60 days on to the home-buying process could even cost you if the seller decides to charge a fee for each day that passes after the original closing date. If you’re trying to sell and buy a home at the same time, you could also run into trouble if your closing dates no longer match up because you switched lenders.

2. Interest Rates Could Climb

Top 3 Reasons to Avoid Changing Mortgage Lenders

Interest rates can change in the blink of an eye. After the Brexit vote, mortgage rates dipped to near-historic lows. But within weeks, some rates were climbing again. If you’ve moved on to another lender who’s offering you a lower interest rate, it could change if you haven’t agreed to a rate lock.

There are benefits and drawbacks to locking in a mortgage rate. A rate lock could protect you if mortgage rates rise before you close on your home. But if rates go down, locking in your interest rate could be a waste of time and money (especially if your lender charged you for locking in your interest rate).

3. You Might Pay More in Closing Costs

Closing costs encompass a laundry list of fees that have to be paid before you can seal the deal on a home. Examples include attorney’s fees, credit check fees, mailing fees and advance payments for homeowners insurance and property taxes. Generally, closing costs fall between 2% and 5% of the loan amount.

Changing lenders and applying for a different kind of loan could have a significant impact on the amount of closing costs you have to pay. Even a 1% or 2% difference could drive up the cost of buying a home by thousands of dollars.

Consider this example. Let’s say you’re taking on a $250,000 mortgage and your lender wants you to pay $5,000 in closing costs (or 2% of your loan amount). If you switch to a different lender who wants to lower your interest rate but raise your closing costs to 4% of your loan amount, you’ll have to pay at least $10,000 out of pocket.

Getting the lower interest rate could save you money over the life of the loan. But having to pay more money at the closing table could leave you feeling financially strapped. If you’re already using a significant portion of your savings to cover your down payment, changing lenders might not be worth it.

Final Word

Top 3 Reasons to Avoid Changing Mortgage Lenders

Perhaps you’re ready to call it quits and end things with your mortgage lender. But dumping your lender probably isn’t something you should do on a whim. Before cutting ties with the person you’ve been working with for a few weeks (or a few months), it’s best to look at what you stand to gain and lose from changing lenders before closing on the home you’re buying.

Tips for Choosing a Mortgage Lender

  • To avoid lender issues, it pays to research the companies you’re considering working with. This could mean reading mortgage lender reviews, looking up lender complaints on the Consumer Financial Protection Bureau‘s database or speaking with friends and family about what company they chose to work with.
  • It helps to have good credit and decent down payment savings before searching for lenders. That way, you’re in the best possible spot to get favorable loan terms from multiple lenders.

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Photo credit: ©iStock.com/DragonImages, ©iStock.com/Alexandra Iakovleva, ©iStock.com/Justin Horrocks

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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