I get this question a lot when a client decides to purchase a new home, so many of which are built by production builders. These builders *usually* tie their incentives to the use of their “in house” lender. So, should you? Or shouldn’t you?
I always say first and foremost get a recommendation from your agent… and be prequalified with that loan officer. Get an estimate of down payment and monthly payments based on the loan options available to you. Make sure you’re comfortable with the price range established. Who cares if your lender thinks you can afford it? YOU need to know that you can afford it. (Well, the lender needs to agree otherwise you’re not getting the loan.)
Builder’s lenders are there to service the builder…. not you. If there’s an option, they will find it for you, regardless of whether or not it is a good option for you.
The builder almost always has some kind of an arrangement with the lender so they get to share in the proceeds from the loan. That is why they offer you incentives to use their lender. And their lender will usually charge you extra junk fees to eat up part of what they are giving you. So the incentive is never quite as good as it sounds.
Maybe the builder offers you $10,000 in closing costs… but their lender charges you an extra $2500 in junk fees… the real incentive to you is $7,500. If they will not provide that same incentive to you if you use your lender of choice, then it’s still worth it to use their lender.
The key to being an informed buyer is education. Again, I go back to my original advice. Have a conversation with a trusted lender – like someone your agent recommends. Get a quote. Understand the loan terms. Then, if you end up buying something new, compare what the builder’s lender is offering to what you were quoted by the original lender. You’ll know what you’re really getting from the builder once you compare the quotes.
Other than the dollars collected, there are other reasons builders want you to use their lender:
- Their lender knows their contract, and will not say anything to you that leads you to believe the contract is unfair.
- Their lender knows their product – they know if it is approved for a variety of loan programs. Your lender may have to figure this out, which could cause hiccups in the plan.
- Their lender is going to do the best they can to ensure the appraisal gets through without a wrinkle.
- Their lender will communicate with them about how responsive you are being returning requested documents, and will tell them if you have a loan issue. Your lender will not communicate with the builder about this without your permission.
- Their lender *will* close on time… because if they don’t, then there will be personnel changes in their lender’s office. Your lender, if wisely chosen, will also close on time. If you picked your lender off the internet…well, you have 50/50 chances of closing on time.
I am assembling a list of preferred lenders, but if you’re looking to get prequalified, I will highlight 2 lenders that I trust:
Pat Cunningham, Home Savings Trust Mortgage