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HOW TO CHANGE MORTGAGE COMPANIES MIDSTREAM

Okay, you did all your homework, interviewed your loan officers, and made your choice. Then you found out that despite all your effort and the best intentions, you made a mistake and went with the wrong loan officer.

Maybe the rate was quoted incorrectly. Perhaps the loan officer is being rude to you. Or your intuition tells you something is not right. Can you simply switch? Yes, but there are certain things you need to consider first.

The very first consideration is how far along you are in the loan process. If your property is scheduled to close in five days, you don't have time to switch. But if you're only a few days into your escrow period, it could be a good idea to call another lender that you didn't initially choose.

Next, before you switch lenders, call the other lender to see if it can still offer the same loan program it originally quoted to you. Or better yet, have rates dropped since you last spoke?

If you decide to leave one lender and go with another, you should contact the lender you're leaving and officially cancel the application.

There will be different cancellation procedures from one lender or mortgage broker to the next, but many do ask for a written cancellation. You can send that cancellation in an e-mail or perhaps there's a form you need to sign. Just be sure you let the other lender know you're leaving it, and why. If the lender made some errors, it will want to fix things and make it up to you instead of losing a loan altogether.

Remember that loan companies don't get paid until a loan closes, and there is no small amount of work that a mortgage company puts into a loan application just to get it to the closing table. If that loan never closes, the mortgage company loses money.

But hey, forget about them, right? They're the ones who made you mad, so you're switching. But the lender can't transfer your loan package — which includes your initial loan application, pay stubs, bank statements, and all the documentation required to get your loan approved — to another lender. Instead, you'll have to complete a brand-new loan application with the new lender. They'll have to document the file all over again. The lender will contact the attorney and title company to get the legal documents to reflect the new lender's information. The appraisal will have to be changed to have the new lender's name on it. And sometimes a brand-new appraisal will have to be performed.

Some lenders ask for appraisal money up front when you apply for a mortgage loan. Others do not. An interesting fact of paying for appraisals is that even though you pay for the appraisal, typically about $350.00 or so, the appraisal belongs to the lender. You'll get a copy of the appraisal, but on the front of the appraisal it will say something to the effect of, “Prepared for XYZ Mortgage Company.”

You can transfer an appraisal, but the appraiser will demand that the appraisal be paid for if it hasn't been already. Also, be prepared to pay a $50 to $100 “retype” fee to include the new lender's information in the appraisal documents.

We'll discuss closing costs in more detail in chapter 7, but be wary of how some lenders ask for money up front to pay for appraisals. Some lenders simply ask for a check to be made out to the lender for $350 for an appraisal, whereas others ask for a $350 application fee. What's the difference?

If you paid an application fee and not an appraisal fee, then when you try to transfer the appraisal to your new lender, you just may find out that the appraiser has not yet been paid for his work, even though you paid $350. In fact, you may have to pay another $350 for an appraisal. After all, you paid an application fee, not an appraisal fee.

This may sound a tad unethical, and maybe it is. Just be clear when you make out a check to the lender that if s going to pay for the appraisal. To help establish this fact, on the “memo” line on your check write “money for appraisal.”

If you get into a shoving match with your lender, you can point out that the check was for an appraisal, regardless of what the lender says. It's hard to imagine a lender not cooperating, but I have seen loan officers hold appraisals hostage.

 
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