To get your incentive you have to use your builder's mortgage company - Beware!

I love the call from someone asking me to pre qualify a home buyer who is considering a new construction home from a builder. It’s hard to get excited about these types of calls. Sure I’ll answer some questions; I might even look at the proposed mortgage program if the home buyer has one. I won’t however spend much money on pulling credit or time working up different scenarios.

       Why? Why won’t I work with this person much you might ask? Well, it’s because I know that the builder has a mortgage company providing the financing to the home buyer. “Well, what’s wrong with that? It’s sort of like a one stop shop,” one might add. However, it is bad if the home buyer wants to shop around for lower interest rates or closing costs!

       Quite frankly this arrangement with the builder and their mortgage company has been the thorn in many mortgage companies' sides as the builder incentives are often impossible to have a buyer look beyond. The builder makes the incentive contingent on the home buyer using the builder’s mortgage company. The incentive looks like this: I the builder will give you the buyer $10,000 in incentives if you use our mortgage company. If you don’t, your house will be $10,000 more expensive. This is just one example, there are several others but this should give you the idea. Again, it’s not bad for the builder to have the “one stop shop” if and only if the buyer was getting the best mortgage possible.

       I have quoted against many builder mortgage company loan proposals and nearly 90% or more of them I beat hands down. Not only have I been lower in interest rate, I have also been low on my closing cost estimates, or good faith estimates. However, I have closed very few of them because I can’t compete with the incentive. In this case the borrower gets the incentive at the price of less competitive mortgage.

       Another casualty of builder mortgage companies that I have found is the lack of loan products. There are several Fannie Mae and Freddie Mac products that allow 100% financing with some generous underwriting guidelines. Yet, when these loans have been presented to the home buyers who have talked to me, the builder's mortgage company didn't know of such products. The home buyer in most cases is stuck. They can get a better financing deal if they went with us, but they are “forced” to go with the builder’s mortgage company to get the incentives.

       Lately, new home sales have been down. When are the builders going to loosen up in this day and age and let some knowledgeable mortgage companies help them sell their houses? We can work with the same incentive programs as their mortgage companies. The loan money comes from the same pockets that all of us mortgage folks reach into. So builders, you want some help selling your homes, let some of us mortgage folks out here help you out!