Can a Builder Require me to use the Builders Preferred Lender
No! While the builder can require that you be qualified by his preferred lender, you are free to borrow from whomever you please.
However, offering inducements to use a preferred lender is legal if it is done properly.
In developing strategies to sell homes and dealing with buyers. Denver home Builders will often push a buyer to use their preferred lender.
First of all the builder expects to make money on the lending operation but the main reason for having a preferred lender is to provide assurance that home sales won’t fall through because of lack of financing usually caused by a buyer having previously undisclosed credit problems.
The builder wants to avoid investing significant marketing dollars in finding a buyer, who then leaves him at the altar because his loan doesn’t come through.
To make up for these losses, other buyers are over-charged. Since the builder cannot require buyers to use the in-house lender, he encourages them to do so by offering concessions that he hopes buyers will value by more than the over-charge. For example, if the loan over-charge is $2500, the builder might offer kitchen cabinets with a retail price of $3,000, but which only cost the builder $1,500.
It is a mistake for a buyer to commit to a builder with an in-house lender without knowing the financial part of the purchase. The true price of the house when using the builders lender is, where P is the posted house price, O is the overcharge on the loan, and C is the value to the buyer of the builders concessions. This is the price that should be used in comparing houses offered by different builders.
The value of the concession is the value to the buyer, which could be less, perhaps considerably less, than the value suggested by the builder. If the builders concession is to absorb some or all of the settlement costs, the buyer should check the alleged cost savings against those shown by other lenders.
In comparing true prices of different builders, buyers should give the builders ample opportunity to sweeten their concessions in order to make the deal. Especially in the kinds of soft markets that are common in early 2007, aggressive bargaining can yield a large payoff.
Professional Advice
Best Advice I have for you is to shop lenders make sure you ask the lender what the yield spread premium is, some offer no loan origination fees which is required to be disclosed on the HUD One document, back end fees are not. Also make sure your comparing apples to apples and Hire a Realtor to help you negotiate as well as understand the details of your new home purchase. Locating homes is only a part of what a good Realtor does for you.
Don’t assume you have the same consumer rights. Builder contracts are written for the benefit of the Builder. Contract forms used by Realtors are written and approved by the governing states real estate commission to protect the best interest of buyers.
Many new home buyers believe if they buy directly from the builder they will save money. This generally is not the case. Most new home builders are members of the Builder Realtor Council. The BRC’s builder members agree to pay Realtors a selling commission if they are involved in the transaction on behalf of a buyer. If a Realtor is not involved in the purchase transaction, the builder retains that commission money. That money is not offered to the buyer in the form of a credit or a reduction in purchase price. Therefore, there is no financial savings for the buyer by not using a Realtor in the transaction.
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Jeffery McClintock, is a real estate broker in Denver and prides himself on providing clients with professional guidance in all phases of residential new construction, including market research, product development, consulting, marketing and advertising. His personal mission is to bring to you a level of knowledge, experience, commitment, high standards and results to answer your real estate needs. He believes, the most effective way to provide superior service is to build a strong working relationship with you. His system includes regular consultations and feedback, which is the best tool for identifying and clarifying your real estate objectives and help define strategic solutions.
Jeffery has been a licensed Realtor since 1995. During this time he has successfully closed over 135 million dollars of residential real estate, and 40 million dollars in un-improved land amounting to 660 individual real estate transactions. His professional experience includes the Denver Colorado front range and the Second Home market in Breckenridge, Colorado located in Summit County.
Posted by: Jeffery McClintock
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