Friday, September 14, 2012 - Article by: Eric Blossman - Pacific Union Financial -
When purchasing a new build, a buyer today will be confronted with a lot of options. One of the more recent trends we mortgage bankers is seeing is the pressure that is being put on buyers to use the builder's lender. Builder's will claim that there is only one way to get the most options and upgrades and that is to use their own lender. More often then not, this lender is owned by the builder and there is profit sharing between the two entities. The most important thing for a buyer to keep in mind is that there is nothing free when it comes to lending. If the builder is giving more upgrades to use their lender, you can only make the assumption that it is more profitable for them for you to do so. Otherwise why would they bother? It's just more work for them. The answer is simple, they are making more money when you do so. My suggestion to all buyers would be to get quotes from a number of lenders and compare the same rate between the lenders.
The builder is giving you 3.250% interest rate with the title policy paid (value of $2000) and charging you $1500 in fees.
Lender A is giving you 3.250% interest rate but you loose the title policy by using an outside lender but that lender is giving you a $3000 credit with no house fees.
It is easy to tell which one is the better deal, but a lot of this is often difficult to muddle through while you are in the process,. To break it down, the builder is giving you 3.25% and essentially charging you $1500 - $$2000 = a total credit of $500.00 So that is 3.25 with a $500.00 credit The lender A is giving you 3.25% with a $3000 credit but you are paying your own title policy of $2000.00 but you are still getting a $1000 credit. The lender A is the better deal.
Now I am not suggesting that an outside lender can always get you the better deal, but as a consumer you really should weigh all of your options before being pressured to take the builder's lender's deal. You will be told that it is the only way to close in time, and you will lose out on a lot of upgrades and pricing if you don't use them. The fact of the matter is that these deals are structured to cover your upgrades so don't believe the hype that you are not paying for them.
You should also consider the rate offered. If the builder is at 3.625% and paying your title policy but the outside lender is at 3.25% and not paying your title policy, always ask for equal pricing. Ask the lender how much credit can be given at the equivilent rate. You will be surprised at how often the new credit will eclipse the benefits given.
Today's buyers need to keep in mind that in real estate and real estate lending there is nothing that is free. You always pay for it, and my suggestion to anyone purchasing a new build would be to get 3 quotes for comparison before commiting to a lender whether it is owned by the builder or not.
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