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Can a Lender Change the Terms of a Mortgage Loan Before Closing?

Owning a home has long been part of the “American Dream.” The home buying process, however, can sometimes seem like a bad dream without the right people helping you and explaining the process along the way. Because few people have the funds to pay for a home purchase outright, the vast majority of buyers obtain a mortgage loan to finance the purchase. Typically, a buyer will start working with a lender weeks, even months, before the actual purchase occurs to ensure that the lender is willing to lend the necessary funds. What happens though is the lender wants to change the terms of the mortgage loan before closing? Can they do that?

Although the home buying process is never the same for two prospective buyers, there are some steps along the way are that are common to most buyers. Most buyers, for instance, work with a loan officer before and during the home search process. Working with a lender ahead of time ensures that you are not looking at homes that are way out of your price range. It also allows you to check your credit rating and compare interest rates among various lenders to search for the best rate. Once you have settled on a lender and a home the lender will provide you with a loan estimate. It is important to recognize that this is only what is purports to be – an estimate of the costs you will incur if you borrow money to purchase the home.

The terms of the loan estimate you are given can, and likely will, change by the tie you actually close on the home. The TILA-RESPA Integrated Disclosure Rule requires a lender to provide you with a loan estimate within three days of when you provide basic information to the lender. When information on the loan estimate provided to you change, the lender is required by law to provide you with a revised loan estimate. Often, the changes are minimal; however, under some circumstances the terms can change significantly, for example:

  • If the annual percentage rate, or APR, for the loan changes more than 1/8 of a point for a fixed rate loan or ¼ for an adjustable rate loan.
  • The type of loan you take out changes. For instance, if you originally planned to take out a fixed rate loan and now you want an adjustable rate mortgage.
  • The amount of the down payment decreases
  • A prepayment penalty is added by the lender
  • The appraisal comes back lower than expected
  • The lender is unable to verify critical information from your loan application, such as your income.

If you are concerned about the terms of your mortgage loan, contact an experienced Conshohocken, Pennsylvania real estate law attorney as soon as possible to discuss those terms. Contact the real estate law attorneys at Curley & Rothman, LLC by calling 610-834-8819 today to schedule your free consultation.

Real EstateScott Rothman