BOULDER – For people in the market for a new home, purchasing newly built construction is an enticing possibility. For one thing, buying brand new helps you avoid the wear and tear of old houses. It also affords you the chance to customize.
But purchasing new is usually most attractive because it removes competition – you don’t have to vie against fellow home seekers by submitting offer after offer. Buyers can go under contract with much less of a frenzy.
With the purchase of new construction, comes decisions. One of these is whether to use the lender your builder suggests. Of course, it’s not just a mere “suggestion”; it’s also an incentive. Builders typically offer cash (ranging from $3,000 to $5,000) to buyers who use their preferred lender. Why do they do this? And is it beneficial to you?
The reason for this incentive is that builders want control and, by using a lender handpicked by them, they get more of it. However, while this control may benefit them, it doesn’t necessarily benefit you. This is particularly true when considering your pocketbook.
What it comes down to is this: the “incentive” isn’t usually as enticing as it seems. It’s often offered in the form of a closing cost credit (from the lender, not the builder). This certainly means lower closing costs to you, but – ultimately – it may translate to higher interest rates, too.
The current regulations mandate that lenders make the same amount of money on each loan they grant. If they make more money, they must give the surplus to the consumer as a lender credit. When you go with a lender of your builder’s choosing, it often enables the lender to apply this credit because of the higher interest rate.
Still, high rate aside, this doesn’t mean that your builder’s preferred lender isn’t giving you the best rate possible; their offer may certainly be the fairest deal available. However, you won’t know that for sure unless you take the time to speak with a few different lenders. Therefore, the best thing you can do to protect yourself is to ask for a loan estimate in writing. Make sure this estimate includes the number of days for which the rate will be valid. Then, meet with other lenders to determine whether they can offer you something better.
Working with a builder’s lender isn’t a bad thing. But it’s always smart to shop around and make sure the incentive you’re being offered is truly a benefit.
By Michaela Phillips, Guaranteed Rate, Inc. Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail [email protected] or visit michaelaphillips.com. NMLS:312874.