After hours spent researching and comparing mortgage options, you’ve finally closed on your loan with your chosen mortgage company. But after a few months, you receive notice that your loan has been sold.
At first, this news may seem like a reason to worry, but it really isn’t.
The truth is that mortgage companies buy and sell loans all the time. It’s a common practice in the industry that makes it possible for companies to offer home loans in the first place.
But let’s answer some big questions that you might have:
For answers to other questions you may have, jump down to the FAQ section.
Before you can understand why your mortgage lender sold your loan, let’s take a look at some of the key players in the mortgage industry:
While each of these entities are involved in helping you purchase a home, it is important to remember that they don’t view your mortgage loan the same way that you do.
For you, your mortgage is a big personal investment, perhaps a step closer to achieving important life goals. For mortgage lenders — banks or other financial institutions — your mortgage loan is solely a financial asset.
Lenders typically sell loans for two reasons:
When you get a mortgage you will be required to pay interest on your loan. Interest will be combined with your principal loan amount into a monthly payment — payments that you will be making for the next 15 to 30 years depending on your loan term. While the lender will make money from these payments each month, it typically isn’t enough money to support further lending opportunities to other homebuyers at the same time, which is the case for many brokers and small lenders.
Lenders would quickly max out how many people they could lend to if they had to wait three decades to get all their money back, so they sell loans to free up cash and continue offering mortgages to other homebuyers.
In addition to interest, lenders also charge various fees, but selling loans is a much faster way to make more money and replenish funds to lend to others.
It’s important to understand that your loan broker/bank/lender doesn’t make money by lending money. They’re in the business of wholesaling loans and collecting a fee for their efforts. Your “lender” makes money on origination fees and the incentives they are paid by larger lenders. Let’s use a simple example. Suppose your local bank has $1,000,000 to lend. How many home loans can they make with a limited amount of cash? Maybe three or four home loans. However, what if they could sell your loan, replenish their money and receive a few thousand dollars for their efforts?
— Robert Taylor, The Real Estate Solutions Guy
In most cases, your lender will sell your loan to a large mortgage company like Fannie Mae or Freddie Mac, two U.S. government-sponsored entities that buy loans from banks and lenders. Loans are also frequently sold between private mortgage lenders and banks.
Whether your loan is sold to Fannie Mae, Freddie Mac, or another private mortgage lender, you don’t get to choose to whom your loan is sold. For the most part, who your loan is sold to won’t make a difference, but for some borrowers this can be cause for frustration if their loan is sold to a company or lender that they aren’t familiar with.
When you get a mortgage loan, there is a high chance that it will be sold, creating a cycle that has a significant impact on the availability of mortgages to other homebuyers and the economy as a whole.
When your mortgage is sold, not much should change on your end.
If your mortgage has been sold, resist the need to obsess. The loan's terms, such as the interest rate, monthly payment, and remaining debt, will remain constant.The primary responsibility you should prioritize is data management. Keep an eye out for reminders regarding the need to update your payment details. You may need to reroute an ACH withdrawal or mail a check to a new address. And you will not be penalized if you recently made a payment to the former owner of the mortgage. There is a 60-day grace period following the sale of service rights.
— Jennifer Harder, CEO and Founder of Jennifer Harder Mortgage Brokers
Your loan rate and term will remain the same. The only change you may need to worry about is if your loan servicing has been transferred.
If your mortgage loan is sold, two payment scenarios may occur:
If you neglect to confirm where you’re making payments moving forward, you run the risk of sending payments to the wrong place and then incurring late payments.
If your payment circumstances change, requiring you to either mail payments to a new address or set up an online account elsewhere to make direct payments, your lender will alert you and provide direction on how to proceed. In addition, your new loan servicer is also required to notify you within 30 days of the service transfer.
When you receive notice that your mortgage has been sold, the most important thing you can do is check — and double check — the information provided.
When you receive notice that your loan has been transferred, double check the loan details, such as the loan number, to make sure it’s not a scammer trying to dupe you into sending them money. You can (and should) call your previous lender as well, to confirm the loan transfer. Beyond that, just start making your monthly payment to the new lender each month.
— Brian Davis, Founder of SparkRental
It's important to remember that when your loan is sold to a different lender, your interest rate and loan terms always stay the same. The only thing that can actually change is when and where to send your monthly payments, which is why the first thing you should do after receiving the ownership transfer notice is to read it very carefully; make sure that all your personal information and loan terms are correct. You should also look for the date from which your new lender will take over as well as the new billing information so that you can set everything up for your next payment. Overall, there's nothing major or negative that you should worry about when having your loan sold, just make sure all the information is correct and you can continue paying your mortgage as normally do.
— Chris McGuire, Owner of Real Estate Exam Ninja
When you receive notice from your new loan servicer, look out for the following details:
If you take the time to carefully read your mortgage transfer notice, and contact your previous and new lenders, your payment transition should be smooth, and you will continue making your mortgage payments as before.
Most mortgage companies buy and sell loans — there is no guarantee, no matter your lender, that your loan won’t be sold.
However, some lenders strive to service all loans that they underwrite and process.
We analyzed the more than 4,600 mortgage company reviews on BestCompany.com and took a deep dive into 114 reviews mentioning a customer’s loan being sold or bought. From this analysis we learned that two companies stand out from the rest for being more likely to fully service your loan without selling.
On BestCompany.com, 3 percent* of customers mentioned in their review that they chose/like Quicken Loans because the company doesn’t sell loans:
Quicken Loans, via Rocket Mortgage, states that it is proud to service the majority of loans that it originates. However, there is no guarantee that your loan will not be sold if you choose this lender.
*Taken from a sample of 114 customer reviews on BestCompany.com.
In mortgage company reviews left on BestCompany.com, 3 percent* of customers mentioned that they chose/like New American Funding because the company doesn’t sell loans:
While New American Funding can’t guarantee that it won’t sell your loan, the company strives to service the majority of loans that it originates.
*Taken from a sample of 114 customer reviews on BestCompany.com.
From our customer review analysis, we also discovered the following insights about the customer experience when a loan is sold:
Fifty percent of reviews remark on whether or not a customer likes their new loan servicer after their loan was sold. Although you can’t necessarily control who your loan will be sold to, there are some things you can do to help prevent your loan being sold to a servicer that you don’t like or trust:
One of the most important things you can do to secure a more enjoyable mortgage experience, whether or not your loan is sold, is to do your research and ask your mortgage lender as many questions as you can before signing on the dotted line and closing on a loan.
It is very likely that your mortgage loan will be sold at least once during your mortgage term. But, there's no reason to worry.
If your loan is sold, carefully read the notice sent to you by your lender and make sure you understand where you will be making payments. And if you have further concerns, speak to your original lender and new servicer to make sure that you’re all on the same page.
How quickly will my loan be sold after closing?
What do I do if I don't like my new loan servicer?
What if I don't receive notice that my loan has been sold?
Can my new loan servicer charge me additional fees?
How many times can my loan be sold?
Can I do anything to prevent my loan from being sold?
Can I choose who my loan who is sold to?
Are there mortgage companies that don't sell loans?
Your loan can be sold at any time — immediately after closing to 10 years after the fact.
From customer reviews on BestCompany.com, many customers mention that their loan was sold much faster than they anticipated. It is worth preparing yourself for this reality, especially if you are borrowing from a small broker or lender.
You don’t have any control over who your loan is sold to, which can be problematic if your loan is sold to a servicer that you don’t like or trust for any reason.
If you don’t like your new servicer, there is the option to refinance with a different lender, which will change the rate and term of your original loan. Refinancing is a good idea if you can secure a lower interest rate and/or more favorable loan term, helping you save money on your mortgage overall. If you won’t be able to secure more favorable loan terms, it might not be worth refinancing just to get out from under your loan servicer.
Mortgage companies are required to give you notice if your mortgage loan is sold. In addition, your new loan owner is required to notify you within 30 days of the service transfer.
Ensure that your contact information — mailing address, email address, and phone number — are correct before closing on a loan to make sure that the company can reach you for any reason.
If you don’t receive any notice or you have any questions about the mortgage selling process, speak with your original mortgage lender and new servicer. You also have a 60-day grace period when your loan is sold in case you send payments to your old lender instead of the new one, allowing time to take care of any discrepancies in the loan transfer process.
There aren’t any companies that never sell loans. However, some companies strive to service a majority of the loans they originate, such as Quicken Loans or New American Funding. However, even these companies sell loans, so there is no guarantee that your loan won’t be sold.
July 28th, 2021
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