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Jul 2018

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.