Confusing Mortgage Lender Situation (Newbie)
January 14, 2021 10:50 AM   Subscribe

My wife and I are first-time home buyers, and were interested in getting a USDA rural development loan. I applied to one mortgage lender I found on the USDA site, and was approved, but then discovered that the loan officer and I had misunderstood each other -- she assumed I wanted a FHA loan, since the company had recently stopped offering USDA loans, so that was what she approved me for. She said she would find out if they could still do the USDA loan, but I never heard back from her, so I assumed not.

I then went to a different mortgage company and applied again, this time making sure to apply for the USDA loan. I was approved again, but nothing has been finalized yet.

In the meantime, the original property we were interested in became unavailable, so we kept looking and found another house that we love, but (d'ohh!) is not eligible for USDA.

So what I'm wondering at this point is whether to go back to the original lender and see if their offer is still active, or find out if this 2nd lender can change the application from USDA to FHA without going through the whole process again. (We're concerned about the hit to our credit scores from another credit check.) I'm leaning towards the 2nd option since I didn't get the best vibe from the first lender (and the loan officer never called me back).

I am planning to call one or both of these lenders to explain the situation, but as it's my first time with this process, I'd like to get a better sense of how these things work before I speak with them again. Thanks for any advice!
posted by Ser Dirtnap to Work & Money (3 answers total)
Best answer: All lenders have a notion of a "loan shopping period" where credit hits are combined (assuming you are requesting quotes from multiple companies). Generally, these range from 14 days to 45 days.

Lenders generally only make offers that are valid for a single day unless you start an application and "lock" the rate. Unless you locked the rate, any offer you had from any lender is no longer applicable. However, I would be extraordinarily surprised if a lender decided to walk away from your loan (and their corresponding profit) just because you switched loan types.

I am not familiar with USDA loans, but conventional and FHA loans have interchangeable credit checks and documentation requirements. Credit checks are usually valid for a certain period (ranging from 30-90 days) and can be reused for changing loan applications during that period. That's not particularly uncommon - many people switch loan types or loan terms during the loan process depending on what they qualify for. However, I'll note that because of COVID and job uncertainty, it's becoming more common for the lender to pull your credit report and employment information just before closing the loan to verify that you are still employed and not trying to accumulate a massive pile of debt prior to being fired. So, you may not be able to avoid a second credit hit regardless of what you do.
posted by saeculorum at 10:58 AM on January 14, 2021 [3 favorites]

Response by poster: (Quick update: I heard back from the first loan officer, who told me that because of the "craziness going on right now" she did not want to move forward on any mortgage loans until after the inauguration, because rates are fluctuating so much. Now I'm even more confused!)
posted by Ser Dirtnap at 11:08 AM on January 14, 2021

Best answer: Now I'm even more confused!

I'm not sure if this is a question, but lenders take gambles when they lock rates - basically, they only ever make a loan at the actual market cost of the loan as of the closing date, not the rate quoted to you. The difference in loan cost is either profit to the lender (if they gamble well) or a cost to the lender (if they don't). With significant volatility in the market, the lender may not be willing to make that gamble, as a significant rate increase would cause significant cost to the lender.

You are not obligated to lock a rate with a lender (until closing). However, a number of customers might be quite upset if their rate went up significantly during processing. If those customers were upset enough to walk away, it both looks bad for the lender and wastes the lender a lot of time/money for processing costs (which are usually fronted by the lender until closing).
posted by saeculorum at 11:21 AM on January 14, 2021

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