New Construction Tampa; Should you use the Builder's Lender?
New Construction Tampa; Should you use the Builder's Lender?
Finding a new home to buy is the easy part. Home buying decisions then become harder and more confusing. This is where having an experienced Buyer Broker on your side is priceless.
There are a lot of steps that buyers don’t understand when they first start looking at new construction homes.Which mortgage company to use? Who can I trust for a fair rate?
- Since I am paying for it, should I still use the builders title company?
- How are my deposits handled? Should it be held in an escrow account?
- Who will review the legalese in my contract? And look out for me?
Of course the Tampa builder will try to persuade you to use “their” own lender, title and sometimes even their insurance company…they will tell you that it makes the transaction “easier”. They may even throw a bonus your way if you let them steer you to the services that will put more money in the builders pocket…but what does that do to your pocket?
Is this really your best option? Let's talk about it…call 727~202~9130.
Are you really saving money when a builder pays some of your closing costs?
Almost all builders offer money to pay toward a buyer's closing costs if a buyer uses the builder's preferred lender. This is arranged by a lender credit. A lender credit means an increase in your interest rate in exchange for providing a home buyer money back at closing.
So actually, you are paying for the money that supposedly goes towards paying your own closing costs, it does not come from the builder’s pocket. On a rare occasion a builder might pay a portion of it from their pocket but it's doubtful when the market is so hot that they have a waiting list.
The worst part is that the builders do not disclose this to buyers. Buyers think that the builder is doing them a favor by paying a few dollars toward their closing costs when in fact by raising your interest rate just a hair you may be paying tens of thousands more over the life of the loan.
Sure, they might admit that if you ask, but it's not in their contract packet as a disclosure. It should be disclosed! After all, it is your money, not the builders being spent.
Last year, a buyer client of ours received a quote from their lender for a 2.5% interest rate. The builder’s lender, however, was charging a 5% interest rate with a $5000 credit at closing. Double the interest rate for 30 years for “money right now”? Does that sound like a good trade off?
If you really want the best rates and lender fees, it's best to shop around to see what is better for your long-term goals or whether it is better to get the upfront money now via a lender credit.
Builders Use other Tactics to get Buyers to use their Lender
They eliminate the financing contingency, unless you use their lender. Yes, if you do not qualify for a loan using an “outside” lender, your deposit becomes non-refundable. This strong-arm tactic should be outlawed!
- They will not write a contract unless you prequalify with “their” lender first.
- Management (with no loan expertise) must approve your “outside” lender.
- They selectively scrutinize the outside lender’s “Loan Commitment”.
- If there is a lender delay in closing they can be biased and charge late fees or consider the buyer in breach of contract…only if you did not use “their” lender…otherwise they do not charge any late fees.
Why do builders want buyers to use “their” lender so badly?
1. Money, Money, Money…It's all about MONEY! All builders either own or partially own or have a financial interest in “their” lending institution. So, the builder makes more money when you use the builder’s preferred lender.
2. For Control…To have unfettered access to all your financial details. The builder's preferred lender provides builders with weekly updates on your loan. They will know firsthand if there is a problem occurring.
For example: One time, a week before closing, the builder decided that the buyer was undercharged for a stairway upgrade and now wanted an additional $10K from the buyer….how did the builder even know that the buyer just happened to have an extra $10K? (Heck no, the buyer did not pay extra $!)
All lenders in Florida are prohibited from disclosing personal information, but that does not work when the lender is under the control of the builder.
Builder's Lender has an Alliance to the Builder Not you, the Buyer
Contrary to popular belief, the preferred lender works for the builder not you the borrower. Sure, lenders are supposed to work in your best interest, but they get so much business funneled from the builder, that their alliance is always with the builder.
The preferred lender generates a nice income stream with a high volume of ready made business by catering to the builder. That tends to create a lower quality of service to you, because they are not working to earn your future business.
We had a buyer that had a short appraisal, (property did not appraise for the purchase price) . The buyer mentioned to the builder's preferred lender that ‘the purchase price was still worth it”, so the loan officer blabs that to the builder's sales manager. At that point, with the lines crossed, the beans were spilled and it was too late to renegotiate a lower price.
A loan officer should have never communicated the buyer’s position to the seller, never, never! An alliance should only be for the borrower, not the builder.
When does it make sense to use the Builder's Preferred Lender?
- If you are low on cash or need cash. By getting a lender credit, it frees up needed cash.
- The builder's loan offer works for you. If the terms of their loan is reasonable for you, then move forward. On occasion, when a builder has their own finance company such as MI Homes, they can offer a cutthroat rate to sell a specific home quickly.
- If you are denied a loan by an outside lender, then it may make sense to see if the builder's preferred lender can get it done.
- If you are paying off your mortgage quickly after closing, then it might make sense to work with a preferred lender, as the interest rate will not have a significant long-term impact.
About Us: Buyers Broker of Florida
We are a boutique family-owned business offering only buyer client representation,with total loyalty, full disclosure, confidentiality, and trust.
We believe homebuyers should have all information available to them before making a new construction purchase and will be glad to assist you in your new construction purchase. Our commission is paid by the builder.
Contact Buyers Broker of Florida 727-202-9130 for super help buying your Tampa Bay New Construction Home.