Buying a home is stressful enough without worrying about whether your mortgage company can change the terms before closing, or afterward. In fact, under specific circ*mstances, a mortgage company can change the terms. Here are the details.
What Happens When Your Loan Is Approved?
Imagine that you’ve found your dream house, completed the reams of papers for your mortgage loan application, and received the loan approval commitment letter. The commitment letter outlines the loan term, interest rate, and other details. At that point, you may be required to meet certain conditions before closing, such as obtain additional documents, homeowner's insurance, and more.
Next, the mortgage company is required by law to provide important disclosure forms. These documents include:
- A loan estimate details information about the loan you applied for. Lenders provide loan estimates within three business days of receiving your application.
- The closing disclosure form that provides the final terms of the loan as well as the accompanying closing costs. Lenders will provide the closing disclosure at least three business days before closing.
- The initial escrow statement provides estimates of the taxes, insurance premiums, as well as other charges that the lender foresees paying from your escrow account during the first year of your loan.
Key Takeaways
- The commitment letter will outline payment terms, but there will also be other disclosure forms.
- Terms can change before closing under certain circ*mstances.
- Lenders cannot control all closing costs.
When Terms Can Change Before Closing
After you’ve received the loan details and disclosure forms, here are the circ*mstances under which fees may change—and why.
Your interest rate could change. Interest rates fluctuate daily. If you didn’t receive an interest rate lock, your interest rate could change at any time between your mortgage acceptance and the closing date.
In some circ*mstances, even if you have an interest rate lock, your rate can change if there are changes in your circ*mstances or if you fail to close the loan within the locked time frame. If you have a rate lock, then your interest rate and points should not change, as long as your loan closes within the lock period. Rate locks mean that your interest rate will remain constant during the lock period—30, 45, or 60 days or longer.
Your closing costs could change. If you choose to get a different type of loan or if you change your down payment amount, your closing costs could change. Also, if the home appraisal comes in higher or lower than expected. Finally, your behavior or income could be a factor:
- If you take out another loan, miss a payment or do something else that results in a change in your credit
- If your employer was unable to document your income sources, such as overtime, bonus, or other circ*mstances, your loan and closing costs could change.
These scenarios are called a “change in circ*mstances” and indicate that some former agreements are not binding.
Your lender does not control all closing costs. Expenses can change due to circ*mstances outside of his or her control. These include:
- Homeowner's insurance premiums, escrow payments, and prepaid interest
- Fees for services required by the lender, such as title insurance or other required items that aren’t on the lender’s preferred list
- Fees for services that the lender doesn’t require
Certain fees are allowed to rise and are capped at 10%, as long as there is no “change in circ*mstances”:
- Recording fee
- Third-party services from the lender’s written list of preferred providers, unless the provider is an affiliate of the lender, in which case the cost must remain firm
How Your Loan Can Change After Closing
If you choose an adjustable-rate mortgage (ARM), your loan amount will change according to the terms of the mortgage. There are many varieties of ARMs, from 7/1 to 5/1 to 1-year. The numbers refer to periods when the mortgage rate will change. It’s important to understand the parameters of your loan before signing on the dotted line.
Your property taxes and homeowners insurance premium might change periodically. Your escrow account, which your mortgage company sets up, typically pays these types of items. It’s likely that over the life of the loan, the amount of the escrow expenses will change and consequently impact your total payment to the mortgage company.
The Bottom Line
In the end, many initial fee estimates will change at closing. The items that should remain the same are the loan terms, as long as you don’t experience any major financial changes in your circ*mstances.
FAQs
A transfer or sale of your mortgage loan should not affect you. “A lender cannot change the terms, balance or interest rate of the loan from those set forth in the documents you originally signed. The payment amount should not just change, either. And it should have no impact on your credit score,” says Whitman.
Can a bank change the terms of a mortgage after closing? ›
While the terms of your loan won't change unless you have an adjustable-rate mortgage or if you refinance, it is possible for your payments to fluctuate over time due to changes in your escrow account. If the taxes or insurance increases, your mortgage payments will increase.
Can loan terms be changed? ›
When you refinance, you can change your loan's term, your interest rate and even your loan type. You can also take cash out of your equity with a cash-out refinance.
Can you change the term of a mortgage? ›
Yes you can, and changing your term won't affect your monthly payments. However, the term can be changed to coincide with the maturity of your repayment plan.
Can you change the terms of mortgage without refinancing? ›
There is one way you can get a lower mortgage interest rate without refinancing, however. A mortgage modification allows you to change the original terms of your home loan due to a financial hardship. Your lender may adjust your loan by: Extending your loan term.
Can a mortgage company change terms? ›
A transfer or sale of your mortgage loan should not affect you. “A lender cannot change the terms, balance or interest rate of the loan from those set forth in the documents you originally signed. The payment amount should not just change, either. And it should have no impact on your credit score,” says Whitman.
Can a mortgage company change their mind after closing? ›
You have signed all the papers necessary and have reached an agreement. Your lender is bound by law to stick to your contract. After closing, your lender cannot go back on the arrangement they have made with you. Your loan can be denied anytime from the point of application to the point of closing.
Can lenders renegotiate loan terms? ›
It may agree to refinance the loan now that you have better credit, or he may offer to renegotiate the loan's terms. These two options are basically the same. Some lenders will look at the situation and decide that your credit may be better now, but it wasn't so great originally, and not want to take the risk.
What qualifies as a valid change of circ*mstance? ›
Extraordinary events: Unforeseen circ*mstances such as natural disasters, changes in tax laws, or regulatory changes that affect the cost of the loan or settlement charges can trigger a valid change of circ*mstance.
Can a loan agreement be amended? ›
This is a standard form of amendment agreement for use where a borrower and its lenders have agreed to modify their loan agreement by adding, changing or removing provisions and defined terms.
Your servicer can change. Your mortgage servicer may transfer the mortgage servicing rights for your loan to another company to service your loan. If your mortgage servicing rights are transferred to a new servicer, you will need to start sending your monthly payments to the new servicer after a certain date.
Can you change your mortgage agreement? ›
The majority of lenders will allow you to secure a new rate up to 6 months in advance, whether this is with your current lender or you are looking to remortgage. However some lenders will only allow existing customers to choose a new deal three months or even one month before their current deal ends.
Who has the right to cancel a mortgage? ›
The Truth in Lending Act (TILA), or Regulation Z, is a federal law that protects you from unfair and predatory lending practices. Under TILA, you have the right to rescission. This is a consumer protection that lets you back out of certain home loans within three days without penalty.
Can you change your loan term? ›
You can change your rate or term.
In addition to adjusting your principal, it's possible to change both your interest rate and loan term when you take a cash-out refinance. This is in addition to taking cash out of your equity.
Can you remove someone from a mortgage loan without refinancing? ›
While refinancing is the most straightforward and obvious way to remove a person from a mortgage, that option isn't always available or optimal. Doing so without refinancing is possible via mortgage assumption, loan modification or even bankruptcy.
How do you qualify for a loan modification? ›
Generally, you can qualify for a loan modification if you've had an income loss or reduction that caused you to miss your mortgage payments. Or you have to be in imminent danger of falling behind on payments. But you must have sufficient income to make modified payments.
Can a mortgage be taken away after closing? ›
If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. If you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract.
Can a bank take back a loan after closing? ›
In general, a lender cannot cancel a loan after closing unless there are specific circ*mstances outlined in the loan agreement or if fraud or misrepresentation is discovered. Once the loan has been closed and funded, the lender has typically committed the funds and established the mortgage lien on the property.
Can a loan amount change after closing? ›
Some mortgage costs can increase at closing, but others can't. It is illegal for lenders to deliberately underestimate the costs on your Loan Estimate. However, lenders are allowed to change some costs under certain circ*mstances. If your interest rate is not locked, it can change at any time.
Can a mortgage be declined after closing? ›
Clear-to-close buyers aren't usually denied after their loan is approved and they've signed the Closing Disclosure. But there are circ*mstances when a lender may decline an applicant at this stage. These rejections are usually caused by drastic changes to your financial situation.
