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 circumstances, 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:
- Good faith estimates detail your settlement and closing costs.
- Truth-in-lending disclosure statements provide an estimate of the costs you’re likely to pay during the closing of the mortgage loan. The form includes the total costs of the mortgage as per the terms of the loan agreement.
- HUD-1 settlement statements specifically detail the closing costs, including credits and debits, and is presented 24 hours before closing. This statement is the most accurate view of your expected costs.
- The commitment letter will outline payment terms, but there will also be other disclosure forms.
- Terms can change before closing under certain circumstances.
- 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 circumstances 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 circumstances, even if you have an interest rate lock, your rate can change if there are changes in your circumstances 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 circumstances, your loan and closing costs could change.
These scenarios are called a “change in circumstances” and indicate that some former agreements are not binding.
Your lender does not control all closing costs. Expenses can change due to circumstances 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 circumstances”:
- 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 circumstances.