What Happens to Your Loan After You Close?
You made it – the process of searching for the perfect home is finally over! You found the one, and you’ve signed the closing paperwork – now what? It’s time to review your loan details to ensure you’re prepared to make your first payment as a new homeowner. In some cases, your lender will also service your loan, which means you’ll send your payment to their office. However, in many cases, lenders sell loans to mortgage servicers, which we’ll discuss in detail below.
The closing process
The day you close on your home is the day you receive the keys and officially become responsible for the mortgage. During this process, you’ll sign paperwork making the transaction official and funds will be distributed as appropriate between buyer, seller, and your lender. Before you leave, you should receive a folder (or a digital file) with copies of all the documents you just signed. You should keep this information in a safe place, where you can refer back to it as needed in case questions come up down the road.
The post-closing process
You’ll go through the entire mortgage application process with your lender, who will facilitate the transaction and lead you on the path toward becoming an official homeowner. However, as mentioned above, many lenders will actually sell your loan to another financial institution to service your loan. Occasionally, a lender will also service their loans, but most just finance these loans temporarily and sell them to a mortgage servicer post closing.
What does a mortgage servicer do?
While a lender has the ability to originate mortgages and service loans, mortgage servicers only manage existing home loans and do not lend money. The primary role of a mortgage servicer is to process your mortgage over the life of the loan, collecting your monthly payments and properly distributing funds (mortgage payment, taxes, insurance, HOA dues, etc.). Additionally, they also send an annual mortgage statement, breaking down how your payments were distributed over the course of the year. They can also assist with any financial crises or payment delinquencies you may face.
Why was my loan sold to a mortgage servicer?
If a lender sells your loan to a mortgage servicer, don’t take it personally. Typically, most lenders lack the resources to retain servicing on every loan they originate. In some cases, lenders will opt to retain servicing, but will still sell your loan to recoup the costs of the mortgage. In any event, your loan terms will not change, even if your loan is sold to a mortgage servicer. The only thing you’ll need to be cognizant of is where you should be sending your monthly mortgage payment. If your loan servicer does change hands, you should receive a welcome letter from the new servicer with payment instructions as well as a ‘goodbye’ letter from your old one.
If you’re uncertain about the information or feel it’s suspicious, it’s a good idea to get in touch with your lender to confirm the accuracy of the transition.
Other Things to Prepare For Post Closing
Now you know that there’s nothing to fear if your mortgage changes hands after closing, but what other things should you be prepared for?
Lots of Mail. Since a home sale is a public record, you’ll start to receive offers for home services and even mortgage protection insurance. Take these offers with a grain of salt, and when in doubt, do your research before committing to anything!
Changing Your Driver’s License. You should check with your state for specifics, but most have a deadline for changing your address on your license.
Future Payment Changes. 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.Keep in mind, if you end up paying any overage into your escrow account, you’ll receive a refund.
In addition to the financial and legal to-do’s after closing on a home, there are also a number of practical things to cross off your list before moving in. Remember to always keep your personal and financial information safe in order to protect your assets. This is especially critical after buying a home, since scammers often target recent homebuyers with information that appears to originate from your lender, agent or even the title company. The home buying process has many moving parts, but your lender is there to keep everything on track and to be your resource through the entire experience. Once you’ve closed on your new home, take a moment to breathe – the hard part is over! Remember, even if your mortgage changes hands post-closing, there’s no need to fret – just make your monthly payment and enjoy life as a new homeowner.
After closing day, your loan moves into the servicing phase. In some cases your lender continues to service the loan, which means you send payments to them. In many cases the loan is sold to a mortgage servicer that collects your monthly payments and distributes them to the investor, taxing authority, and insurers on your behalf.
This is common and it is not a reflection on you or your loan. Most lenders do not have the resources to retain servicing on every loan they originate, so they sell servicing rights to recoup costs and continue lending. Your loan may also be sold to an investor such as Fannie Mae or Freddie Mac while servicing is handled separately.
No. Your interest rate, loan term, and the terms documented in your loan agreement generally do not change when servicing transfers. The main thing that changes is where you send your payment. If your servicer changes, you should typically receive a welcome letter from the new servicer with payment instructions and a goodbye letter from the previous one.
Scammers sometimes target recent homebuyers with mail or email that appears to come from a lender, agent, or title company. If anything about the notice feels off, do not use the contact information printed on the letter. Instead, reach out to your lender or your existing servicer directly using a number you already have on file to confirm the transfer before sending any money.
Your first payment is typically due on the first day of the second month after closing, though this depends on your closing date and loan terms. Your closing documents will state the exact date. If you are unsure who to pay or when, your mortgage banker can point you to the right contact.
The principal and interest portion generally stays the same on a fixed-rate loan. However, your total payment can still change if the taxes or insurance held in your escrow account increase or decrease. If you overpay into escrow, you may receive a refund after the annual analysis.
Keep your full closing package in a safe place, since you may need it later. Each state sets its own deadline for updating the address on your driver's license, so check with your state agency. Expect a wave of mail offering home services and mortgage protection products, and research any offer before committing. Homeowners in coastal markets such as Virginia Beach, Hampton Roads, New Bern, and much of Florida should also confirm how flood and windstorm coverage affect their property tax and insurance payment.