First-time buyer – Can I change mortgage companies after I made the offer?

Question - I submitted an offer on a house and used a pre-approval from one mortgage company, but now that the offer has been accepted I want to change mortgage companies; can I still do that?

Answer – The short answer is yes, you can change mortgage companies; however, remember that the offer

that you made and which was accepted was based upon a pre-approval of some sort from a mortgage lender. The seller used that pre-approval as part of their decision to accept your offer. If you are going to change now, after the offer was accepted, you need get a new pre-approval letter and present that to the seller. If you not only changed mortgage companies but the mortgage type, you may get push back and even a cancellation of the deal by the seller.

On most Purchase Agreements there is a timetable for the buyer providing proof that they have initiated the mortgage application process – usually within the first 10-14 days in this area. There is also a timetable that you have put some committed date upon to get through that process – usually 30-45 days (longer if it is a short-sale or foreclosure). The reason that I mention those is that you have started those clocks running when you signed the PA and to start a search for a mortgage company now may throw those timetables off. So, if you must make a change, do it quickly.

There is also the commitment, if any that you made or feel that you made to the original mortgage rep. If you didn't do anything more than talk to him/her over the phone and answer a few questions for a pre-authorization that is one thing and you’re probably free and clear to change. If you sat in their office and filled out forms, or maybe even signed something (was that a mortgage application?) you may be on the hook for at least some charges. If the mortgage rep went beyond just the preliminary credit check, perhaps at your request, then they might have expenses that they need to recover from you. Usually there are no costs until they order the appraisal, which they will charge you to do. That normally comes after you've officially filled out and signed a mortgage application.

The changing of the mortgage type that you are now seeking can be a bigger deal to the seller and may even queer the deal. If you made the original offer with a 20% down conventional mortgage loan pre-approval and now you wish to switch to a different type- maybe a zero down VA loan or a 3.5% down FHA loan – the seller does not have to accept that change. He can walk away and may even try to keep your Earnest Money Deposit (EMD) because you reneged on the original deal. He probably won’t get to keep your EMD, but he certainly can nix the deal based upon this change. You need to understand that the requirements on the seller that accompany some mortgage type are onerous to many sellers.

The seller would have the same recourse if you suddenly decided to try to use a down payment assistance program like the MSHDA program in Michigan. While you may think that it should make no difference to the seller where you get the money that is not the issue. The issue is that use of those programs adds length and risk to the process. It takes extra time to get those down payment assistance programs approved and there is a risk that you’ll go all the way to the end of the process and not be approved. In the meantime the seller’s house is off the market and missing other opportunities. Yo can see why he/she might not wish to let you switch from the original offer.

So you can see that the message of today’s post is that you need to have the mortgage step worked out and firm before you make an offer. This is not a game, so don’t approach it like one. Would-be buyers who play the game of throwing low-ball bids to see if any stick or bidding and then trying to switch the mortgage type or company will soon develop a reputation that no good Realtor will want anything to do with and word will get around.  Do your mortgage shopping ahead of getting that far in the buying process and be honest with the mortgage person and the seller from the start. If the seller gets the idea that you were just stringing him along, he won’t trust you and may just back out of the deal, which is his right. If the Realtor feels that you are just playing games he will (or should) fire you as a client. Don’t go there.