Builders Lender or Your Own?

RISMEDIA, May 22, 2008-The home loan packages offered by builders are often touted as being very convenient. But when it comes to evaluating the true benefits the picture is often quite different, according to the home buying specialists at the National Association of Exclusive Buyer Agents, (NAEBA). Recent difficulties in the mortgage marketplace bear this out.”Mortgage shopping can take a significant level of sophistication. In addition, negotiations with a builder’s mortgage company can sometimes be stressful and costly,” stated Barry Nystedt President of NAEBA. “Home buyers still need to compare the builder’s loan offerings to what is available on the open market. Complications arise when the buyer becomes obligated to the builder’s lender without being able to compare the rates and fees other lenders may offer months later when the home is complete.
Sometimes the builder’s lender takes advantage of a buyer by providing an overpriced loan, which the buyer accepts, not wanting to risk losing the builder’s incentives.”
Builders often offer cash or equivalent incentives to buyers for using a builder’s preferred lender. Often the builders’ lenders are related companies that are making a significant profit on this business. The builders’ incentives for the buyer can be in the form of additional landscaping options at no charge, cash credits to closing costs, or adding options to the home at a discounted price.
This is when the buyer needs his own advocate. “Ask your buyer’s agent to obtain for you all the incentives the builder is offering along with the right for you to choose your own lender when your agent negotiates your offer-to-purchase contract with the builder,” recommends Barry Nystedt of NAEBA.
“The first person you speak to normally says no, but often when you ask further up the management ladder you will get a decision maker to agree with letting you use your own lender.”
“If that is not successful, once you are close enough to completion to lock in your rate, you should compare at least 3 other Good Faith Estimates for the same loan type from three credible lenders in your market. To make an accurate comparison, you need to make sure the other Good Faith Estimates are for the same loan type, the same rate lock period, and are good for the same day. Decide objectively if the cash value of the incentives from the builder make up for the cost of any higher rates and fees the builder’s lender is charging. By law, RESPA regulations require that builders allow you to change lenders, but the builder would no longer be obligated to give you the incentives,” and, says Nystedt, “that may have been the reason you decided to purchase a home from this builder in the first place.”