Using Builder's Lender - Worth the incentives???

Question

First time home buyer here. I haven't shopped around for different lenders yet, but do have a question since I see it being offered at many places.

Is it generally good or bad to go with the builder's lender? I will probably have to finance 100%.

An example I've seen says "$12,000 + 1% in closing costs PLUS 2 years Condo/HOA fees." or "Builder to Pay $10,000 towards closing when using builders lender/settleme "

Please let me know the potential pros and cons. Thanks

Answer 1

Very rarely can a broker do better than the builder's lender because of the incentives they have at their disposal. They can almost always give you a better rate, but the cost difference is generally not recovered for10+ years so it just doesn't make sense. I have helped friends get better deals from builder lenders by giving them quotes and naming banks I will use so they can check up on the quotes. This is usually because the loan officer they are using is usually inexperienced and can be easily bluffed. It never hurts to check your options, just be upfront with the brokers you speak to and they will work harder to beat the deal you are getting.

Answer 2

In my experience it is worth the incentives to originally go with the builder's lender and insurance company. Just plan on refinancing to a better rate after 12 months. The builder's lender usually doesn't offer the best rate but that extra $10,000 is wonderful. After your 12 months is over you should be able to find a lender that will do a no closing cost loan and completely refinance your home.

Good luck!

Answer 3

Find out what the builder's lenders closing costs are.
Pre-qualify for a loan with another institution that is offering better interest rates and find out what their closing costs are. Armed wit that information you can determine whether to take the builder's incentives or not. In an area where there is a glut of new housing such as Las Vegas or Phoenix the incentives can be substantial.
At any rate, if you accept them be ready to refinance tomorrow.
Check out bankrate .com for competitive prices for lenders. Don't take the information there at face value. There's a lot of bait and switch from these financial institutions. Talk to those you are intesrested in to ascertain their true rates.

Answer 4

Regardless of what you do, please have real estate attorney read contract before you sign. Often times builders like KB will pass along the fees which should be charged to the seller like "title insurance" to the buyer. Know the price of the home when you sign and read every line. On a recent deal that I was involved in KB tried to charge $17,000 closing costs on a $230,000 townhome. Instead of reasonably asking 3-4% they asked 8% in closing costs. Be very careful, you could end up forfieting your deposit before you find out that it is a bad deal. Just know, you never get something for nothing. If it sounds too good to be true....it probably is. A real estate attorney may cost 5 or 6 hundred to look over a contract but this is minute compared to the thousands you may lose in a contract that you don't understand until too late.
Builders love first time home buyers. They know that you will just feel lucky to qualify, and that where they get you.
Closing costs should never be more than 4%!!!
It all flows from the contract. If you agree to pay the sellers costs in the contract, they will surely allow you to do it. Don't sign anything...especially if you don't understand it.

Answer 5

Unfortunately there is no solid answer here. Generally speaking it is wise to pick a lender, ask them to pre-qualify you and compare what they offer vs the builder. Remember that the pre-qualification from the lender is just a good faith estimate about how much they'll lend you without looking at your financial situation, while the builder is usually guaranteeing you a set deal. Nonetheless, you'll find winners and losers on both sides, depending on the lender, builder, economic conditions and your credit worthiness.

Answer 6

You are unlikely get the best financing you could have gotten on the open market. Plan on paying at least an extra .25% in interest.

But, they fudge the numbers so badly it's almost impossible to justify going somewhere else.

You should, however, get at least one quote from a broker or two that are not affiliated with the builder, and just make sure you're at least in the ballpark. Builders don't pay their loan officers very well, so many aren't as experienced as outside brokers, and they won't have as big of a product mix to choose from as a broker would, so it's possible you could see big differences. But usually, you're just getting a little screwed, not a ton.

Answer 7

I am a mortgage broker. Offering $12,000 + 1% towards closing costs seems a little too good to be true....

What sounds like it is too good to be true, usually is. So they are saying they will give you $12k plus 1% (let's say 100K house to keep it simple) so another $1,000. That is a supposed $13,000.00 they will pay? Closing costs on a house in the $250,000 range are typically $5,000 - $7,000.

There is small print somewhere, or either they builder has overpriced the homes by about $20-$30K.

Answer 8

Finally, that's what I was looking for! Thanks to author of this question.