"I'm going to switch lenders" -you

"I wouldn't do that" -your agent, but what you really hear is "you're putting my paycheck at risk."

"Why not?"

"Because I don't know this lender."

"I'm saving $4,000 and getting a lower rate"

"Do you want the house? Or do you want imaginary savings? Because it's not real savings if you don't get the house. I don't know if this new lender can deliver"

Is your agent right? Is she right to advise against you saving not just thousands on the up front costs, but even more thousands on the interest rate?

I am writing this to help you think of all of the things you should consider when deciding whether or not you should switch lenders.

Here's what I'll cover:

• What does your contract say?
• Transferring an appraisal
• Switching lenders is easier done on a conventional loan
• How fast can the fastest lender in the world close?
• Contract extensions
• Your status as a buyer/borrower makes a difference

Your contract

In general, most sellers don't care what lender you use. Just as long as it gets done on time.

But there are some exceptions to this.

In your contract you may have written language that specifically states which lender you are to use. It might look something like this:

“Buyer shall obtain financing from [Lender Name] unless otherwise approved in writing by Seller.”

A seller might prefer this, because the lender has a great local reputation, and a switch in lenders is viewed as risky.

Some states require a loan status update.

If you switch lenders, you may still need to give the seller a loan status update. If that update comes from a new lender, you haven't breached contract, it's just notifying the seller that someone else is handling the financing.

Your agent may get a call from the seller's agent.

"They switched lenders? What's going on?"

But if you don't breach your contract, you're fine.

Builders.

Builders view predictable and on-time closings as better for cash-flow. They'll go as far to incentivize going with a specific lender for this purpose.

If you switch lenders from the builder's preferred lender to someone else, it might not be breaching your contract, but you may lose out on the seller concessions.

And that might make the switch void of any benefit.

Appraisals

Depending on where you're at in the process, you may have already done an appraisal.

The majority of lenders will accept a transferred appraisal, but you'll want to ask just in case.

Otherwise you will need to factor in the cost and time it will take to get a new appraisal done.

Keep in mind, transferring an appraisal isn't just sending the lender the PDF.

It should be that easy, but it's not.

There is also an AIR certification that needs to go along with it. This certifies that the appraisal was done in compliance with "Appraiser Independence Requirements"

AIR proves there wasn't lender interference with the result of the appraisal.

So you can't just hit "forward" on that appraisal email to the new lender.

You'll need full cooperation of the first lender if you want to transfer an appraisal.

Yes, even if you paid for it.

Be firm in your request, and follow up to make sure it is done quickly.

Or, if you're doing a conventional loan, pay for a new appraisal.

If you are doing an FHA, it's a little harder than that.

Switching lenders with an FHA loan vs Conventional

If you have a conventional loan with an appraisal already done, you have the option to pay for a new appraisal if you don't want to deal with transferring the first appraisal.

With FHA, it isn't as easy as that.

The FHA will give a case number. That case number is assigned to an address and a lender. It will also have an appraisal assigned to the case.

If you've had an FHA appraisal done, but want to switch lenders, your first lender will need to do more work than transferring the appraisal.

They must also transfer the case number.

Even if you aren't switching lenders, you might experience the hassle of case number transfers.

Pretend a house was under contract with a previous buyer.

If that buyer used an FHA loan, then that house was assigned a case number.

Pretend the previous buyer backs out for whatever reason.

If you're the new buyer, and also use an FHA loan, then you will need the case number transferred from the old buyer, to you.

That goes for the FHA appraisal too.

The whole thing needs to transfer. The current lender needs to hunt down the old lender and request a transfer.

Keep this in mind if you're using an FHA loan. You'll need full cooperation from the lender that you're leaving if you want it to happen fast.

Loan officers won't transfer without a fight

When you notify a loan officer that you're done working with them, they could get feisty.

Just like with agents, this is also their paycheck.

The majority of loan officers are paid by commission, meaning, if it doesn't close, they don't get paid.

That's one aspect of it.

The other is their ego.

If you go with someone else, it would suggest that the other lender is better. It could be money, it could be expertise, it could be both.

They take a hit to their ego and their bank account when you switch.

They get angry.

They'll use all sorts of techniques to pressure you to stay.

Or they'll try to come back with a matching offer.

Or they might just help you transfer everything without a fight.

This is the awkward part that scares people out of shopping lenders altogether. Even if they found a better offer, they'd rather not rock the boat.

Timing

Can you switch lenders the day before closing?

No.

You'll need more time than that.

Let's pretend like you have the perfect situation:

• Monday you get the loan estimate
• the lender can underwrite your file immediately
• Tuesday you get the closing disclosure and sign it
• Your appraisal is waived
• You're cleared for closing after the initial underwrite

Even if you had the fastest lender in the world, the earliest you'd be able to close is the next Tuesday

You'd need 7 business days.

Day 1 you get the Loan Estimate.

Day 2 you get the closing disclosure

You cannot get a closing disclosure on the same day you get the Loan Estimate.

Once you get a closing disclosure, requirements mandate a 3-day wait period.

The idea behind this 3 day wait period is to help impulsive buyers clear their head before they jump into this large purchase.

You can't waive it.

But wouldn't that 3 day period put closing on a Saturday?

It would, but there is also a separate rule.

A Loan Estimate must be delivered at least 7 business days before "loan consummation" / closing

The fastest lender in the United States cannot go faster than 7 business days,

What are business days?

Monday - Saturday except for federal holidays.

If you received your Loan Estimate on Monday, and there were no federal holidays, the earliest you could close would be Tuesday the following week.

7 business days

I personally would work on getting your loan-shopping done in the first 2-3 days of getting under contract.

Then put your blinders on and keep your eye on the prize.

Would a seller grant an extension?

Let's say you really want to switch lenders, but you'd need more time to do it.

Can you ask for more time?

Yes,

Can the seller deny your request?

Yes again.

It doesn't hurt to ask, and I've seen sellers approve requests for this exact situation before.

But don't be shocked if they say 'no' especially if they have backup offers.

Consider yourself as a borrower

Before making any moves, I want you to consider yourself, and the house you're about to buy, and give yourself a rating.

Consider these things:

• Is your income easy to verify? Is employment easy to verify?

Easy means salary. Would underwriting be able to contact your employer easily?

• Are your assets easy to verify?

Easy means the money has been sitting an account with minimal activity, and has over 2 months of being there.

• Do you own other properties?

This matters because lenders require a certain amount of paperwork to ensure they're calculating your debt-to-income ratio correctly. It isn't bad to own more than one property, it just means you'll need more paperwork. Think HOA documents, homeowners insurance documents, property tax bills, mortgage statements.

• Does the property need an appraisal? How is the condition of the home?

There are times when you might not need an appraisal. Check with your lender if Fannie Mae or Freddie Mac will waive needing an appraisal. If they won't, is the house in good condition? If you're doing an FHA loan, things like exposed wires and peeling paint will flag a reinspection. A reinspection adds time to the process.

• How is your credit report? Will underwriting have questions about late payments, collections, bankruptcies or other events?

If you're considering switching lenders, but the initial underwrite process had a bit of back and forth regarding your credit history, I'd expect the same from the new lender.

Or worse.

Factor that into your decision. If your loan was hard to get approved in the first place, it might not be worth making the switch if you're short on time.

Summary

To wrap this up, keep in mind the timing, get your shopping done upfront and quickly, and keep everyone on the same page if you want to make a lender switch as painless as possible.