Investment propertyNew Homes: Why Use an In-House Lender?
Let"s face it. Your mortgage broker cousin Larry has known for months that
you are looking at new homes. He has given you advice, told you where to look
for homes, and been there for you when you"ve had questions about the process
you"re about to embark upon. And, he"s family. You"ve assured him that you
would most likely use him as your loan agent. But almost all of the builders
you are considering buying from have "incentive" money linked to using their
own preferred lenders! This can take a chunk out of the money you need to
come up with at closing time, or get you the carpet upgrade you otherwise may
not have been able to add. What do you do now? Sure seems like builders
shouldn"t make you use a particular lender.
First, let"s look at the meaning of the word "incentive". The dictionary
defines it as "a thing that urges a person on; a cause of action or effort;
motive; stimulus." In this case, the builders are providing an "incentive"
for their buyers not only to make a decision to buy a new home in their
community, but may link it to using their own "in-house" or preferred lender
as well. Builders, however, cannot prevent you from using any lender you
choose, be it your credit union or lender-cousin. They understand that some
loyalties run deep. They simply are not bound to offer any of their own
dollars in the form of incentive monies if you do so. Therefore, the choice
will remain yours.
Why do builders sometimes "sweeten the pot", so to speak, for buyers to use a
particular lender? In my experience, builders need to try to have some
"givens" and sense of accountability over the process, when they are taking a
considerable amount of risk in building and upgrading a new home to a buyer"s
specifications. An in-house, or preferred lender, whose first priority is its
builder accounts (not, as they say in the lending industry, "spot" business),
must make it their business to get buyers pre-approved in a timely fashion,
educating the builder on whether it is prudent for them to take a particular
home or home site off the market.
The in-house lender is usually already in the possession of all the necessary
public reports, homeowner"s association paperwork (if applicable), master
government appraisals, and understands the builder"s purchase agreements and
addendums, so that there isn"t any last minute scrambling at closing time.
The builder can hold its own lender accountable for providing the final
dollars to its qualified buyers, and ultimately to itself, making it possible
to lessen the "carry " time on a new home. I call this the "well-oiled"
machine. Builder sales and construction personnel, lender, design center, and
ultimately the buyer, all can be on the same page at the same time, with
status meetings being held on a frequent basis, so that fewer details can fall
through the cracks.
In-house lenders owned by the same entity that owns a particular builder may
also be a profit center, such as its design center, offering at retail what
they purchase at wholesale. As with other businesses, such as car
dealerships, where they hope you use their service centers and financing
opportunities, this is an illustration of the free enterprise system. You
still have a choice to go outside, but may not want to dismiss the incentives
being offered, especially if they are financially meaningful to your bottom
line.
Should you decide to use your own lender and pass on the incentives being
offered by the builder you ultimately buy from, you"ll need to be especially
attentive to the needs of your builder in order to provide them with the
information they will need to build, change, or upgrade the new home. It will
be your responsibility to make sure your loan agent calls or faxes the builder
on a weekly basis, reporting on your loan status, or providing any necessary
approvals for an increased loan amount should you decide to enhance your new
home. When the time comes to close escrow, your lender should be able to let
you know when they will have the proper loan documents in title for you to
sign, based on your builder"s reports as to when the home will be complete and
ready to occupy.
Whether you ultimately choose the builder"s preferred lender or cousin Larry,
the key to a stress-lessened process is communication. When buyers, builders,
and lenders communicate and provide documentation to one another with a
"johnny on the spot" attitude, everyone wins, and finger-pointing will be
eliminated at that crucial projected close of escrow, when emotions runs
particularly high. It can be a thing of beauty when everyone works diligently
up front to make that happen.