Finding a New Mortgage Lender After Pre-Approval: It's Not Without Risk
Many homebuyers wonder if they have to use the lender they received their pre-approval letter from.
The answer is no.
You can switch lenders after pre-approval. In fact, you can make an offer on a home using a lender’s pre-approval letter then shop for a better deal.
A lender can’t force you to use them when they issue the pre-approval.
However, changing lenders comes with risks.
Risks of Switching Lenders After an Accepted Offer
Your best strategy is to shop for and decide on your lender before you’ve found a home.
Submit an offer using the pre-approval from your chosen company.
But if you don't have time to do that, it’s not the end of the world. It’s just a lot more stress.
Once you have an accepted offer, you’re on a tight timeline. Sellers usually want to close the deal in 30 days or less. It could take a few days to receive a quote and approval from a different company.
You could be pressed for time if you hit a snag. Not closing in time puts your earnest money at risk.
Still, changing lenders during this time can be worth it.
Reasons You Might Switch Lenders
There are plenty of reasons you might change lenders after you’ve been pre-approved.
Responsiveness: The lender may not be responsive during the pre-approval process. This isn’t a good sign for later in the process when responsiveness matters even more.
Rate: You may receive a much better rate and fee structure from another lender. However, make sure the cheaper lender can close on time. A great rate still costs you more if you lose your earnest money.
Reputation: You may have to switch lenders after pre-approval but before an accepted offer. Some seller’s agents won’t accept offers with pre-approvals from subpar lenders. Real estate agents know which lenders miss closing dates or issue invalid pre-approvals.
Program: Another lender may have a loan program that suits your situation better.
Is It Worth Switching Lenders for a Better Rate?
Perhaps the most common reason to shop around after an accepted offer is to get a better rate.
Well-qualified buyers purchasing a basic house can probably shop for a few days after their offer is accepted. Their file can likely be approved quickly by most lenders.
But applicants with lower credit, complex income, high debts, or who are buying a non-standard home should consider staying with their lender, despite a higher rate.
These buyers may find that another lender, while promising a lower rate, can’t get the file through underwriting in time – or can’t get it approved at all. Appraisal issues could extend the closing on older or unique homes. These situations could jeopardize your earnest money.
Will Another Lender Approve You?
Most applicants who receive a pre-approval the first time can be approved by other lenders.
Lenders use the same general rulebooks for Fannie Mae and Freddie Mac conventional loans as well as FHA, VA, and USDA loans.
However, these agencies allow lenders to create stricter rules as they see fit. For example, one lender may require a 640 score for a USDA loan while another allows 600.
Either lender would work for you unless your score is below 640. Then you would have to stay with your current lender or find another one that allows lower scores.
Shop rates and find your lender here.
How to Rush Your Approval With a New Lender
If you’ve decided to make the leap to a new lender after pre-approval, give yourself the best chance to close on time.
First, contact the new lender and give them details on your closing date. Make sure they can close on time. Complete an online application. This will save the lender from manually inputting your information.
Next, grab all the same documentation you sent to the first lender and send it to the new one. Upload it to their system if they have this capability on their website. A complete file will speed up your file review.
Be ready for additional documentation requests. Your file will go to the loan processor, whose job it is to prep the file for underwriting. Processors are usually very good at flagging missing items or documentation that may cause issues. Send items quickly.
Even with a fast lender, the appraisal can take time. Have the lender order the appraisal the same day. This may require upfront payment.
As your file progresses through their system, request updates from your loan officer. Watch for further information requests and respond same-day.
If you stay proactive, you should not have a problem closing on time.
Shop For a Mortgage as Early as Possible
If you plan to buy a home in the coming months, start shopping for a lender now. Finalizing that decision will relieve stress later.
