Buying from a Builder
By: Sonny Allen
When buying a newly constructed home from a major homebuilder, you will most likely be presented with an offer to work through an affiliate lender. In most cases, the lender will be owned or partly owned by the builder through what is known as an Affiliated Business Arrangement. The offer to use the builder's lender will almost always be tied to discounts on the price of the home, the cost of the title insurance policy, discount points paid toward the loan, or free upgrades, all of which are conditional upon the buyer obtaining their financing from the builder's lender. The customer has the right to obtain their mortgage from a lender of their choice; however, in many cases these incentives equate to enough dollars to force a prudent buyer into using the builder's lender.
These lending arrangements are somewhat controversial because they remove the customer's ability to get competitive comparison in the market place. From the builder's standpoint, controlling the financing can help make sure the sale closes on time, avoiding additional costs. The homebuilder also benefits from additional income from the mortgage. Consumers can benefit as long as the incentives are legitimate and accompanied with competitive interest rates and fees without sacrificing service. In many cases however, the incentives are fabricated through overpriced upgrades that are not an actual financial gain for the consumer. Additionally, builder owned lenders frequently offer interest rates that are not as competitive as what a borrower could obtain on the open market.
So, how can a homebuyer make sure they are getting a good deal? Be smart, ask questions! Find out the exact value of the upgrades and get quotes from other builders or contractors to make sure the upgrade value is real. Be sure to compare interest rates quoted by a builder's lender, not just at the time of application but also when you are ready to lock in your interest rate. Builder owned mortgage companies are often staffed with less experienced personnel so be ready to get help if the process gets bumpy. And finally, report any unfair or illegitimate dealings to your representative politicians so that laws can be passed to protect the customer in these arrangements. If you need help doing this contact the National Association of Mortgage Brokers at www.namb.org.
The Team at Integrity Home Mortgage is committed to helping you get the best deal, even if you close with another lender. If you end up buying from a builder who steers you into working with their own mortgage company, please don't hesitate to keep us involved so that we can keep them honest for you and make sure that they don't lead you astray. We will gladly do this at no charge to you. Our commitment to you goes beyond just closing your loan. We want to build an enduring relationship with you that lasts a lifetime.
