The concessions, credits, and “free upgrades” might not be worth it.
In the current housing market, buyers are looking more often toward new construction homes instead of purchasing an existing home. While this is a great option many will be pushed toward the builder’s preferred lender for their financing needs.
The builder and preferred lender often add in things to sweeten the deal, like extra landscaping, free upgrades to the interior of the home, or paid closing costs. The average buyer looks at the smoke screen of options laid out for them and ignores the fine details and intricacies of the transaction. Are you really benefiting from those freebies? How do you know if the preferred lender has your best interest in mind?
Analyze the Relationship
There are several different levels of builder / lender relationships. Some builders choose to pair with a separate entity to secure financing for your new home while others have their own arm of the company that handles the financing for their customers.
There are many things to be weary of in both scenarios. If the builder has their own lender they may not have your best interest at heart. They have full control over the pricing and options afforded to you and can exert pressure for you to use their lender to buy the home. THEY ARE NOT ALLOWED TO REQUIRE YOU to use their preferred or in house lender.
Financial Concessions & Closing Costs
Often when a builder is pitching a new construction home they offer financial concessions and incentives to utilize their preferred lender. This can take the place of closing cost assistance, credits or “free” upgrades. What most home buyers don’t realize is that these concessions or freebies are often included in the home price and the buyer is likely being charged for them.
We just recently dealt with a buyer who was buying a new construction home. They were being charged points to lower their interest rate and were also getting hit with fees and costs in their loan estimate which were much higher than their standard rate for most of those fees. A credit of $8k was eventually whittled down to a little over $5k. The free upgrades they were offered were already fixed into the purchase price of the home. Essentially what the builder and lender offered them was mostly smoke and mirrors and not much substance.
Builders and preferred lenders make a killing on this type of predatory practice because they don’t take the extra step to educate their buyers on the significant details of their Loan Estimate.
Shopping Your New Construction Purchase
Whenever you’re looking to buy a home whether it’s already built, you’re building it, or you’re looking to buy new construction you should always shop around for the best rates, terms and service. Thankfully here at The Orlicki Group we have the ability to shop your scenario to a myriad of different lenders. We have access to over 50 different lenders, all with specialty pricing and products. We’re never afraid of competition. We always welcome the chance to earn your business but you probably won’t feel the need to go far.
Whenever you are looking to buy it’s always best to make sure you get an “apples to apples” comparison. When purchasers come to us with an offer from a builder we always create a matching scenario with the same rates and show potential customers what we are able to offer. Sometimes the offers the builders make are great, other times, they only seem that way on the surface.
What if they aren’t willing to offer the additional builders incentives if you don’t use the builder’s preferred lender?
On occasion we’ll see this happen. The builder is not willing to add in upgrades or concessions on the home UNLESS the preferred mortgage lender is utilized. In this case what we like to do is guide the buyer though their purchase and once sufficient time has passed offer them a refinance to get them better rates and terms. This allows the buyer to utilize the free upgrades and pay what they should have been paying all along.
While the agent may try to steer you toward their builder’s preferred lender, they cannot legally require you to use their loan company. It’s sad to say that they can make it exceedingly difficult to go elsewhere. If you have any questions on new construction please get in touch with us today for expert guidance. We can get you approved right away and give you the best rates, terms and service around.