Is the homebuilders preferred lender really a great deal, or are they ripping you off? Why you may want to use the home builders preferred lender. Home builders will give you a better deal if you use their preferred lender & here's why.
Utah Realtor: Ty Wilde
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If you're looking to build a home, you’ll find out quickly that most home builders will offer a better deal for using their “Preferred Lender”. The incentive is often money toward closing cost or any number of upgrades. This often leaves buyers wondering where is the incentive money coming from? Rightfully so, many assume that in some way, they are paying for it either with increased closing costs or a higher mortgage rate. Just so you all know, I’ve helped hundreds of families through the process of building a home and I’ve worked with dozens of these preferred lenders. So, I’m speaking from experience when I say, the incentive to use the preferred lender makes it hard for outside lenders to compete. Your closing costs or mortgage rate could possibly be slightly higher with the preferred lender, but with the builder’s incentive you’re usually better off going with the builder’s lender… but not always. Despite what many think, most of the builders preferred lenders are not out to take advantage of you. But, you’d be a fool to not get a second quote from an outside lender.
Also, there are basically two types of preferred lenders. There are the lenders who aren’t tied to the builder financially in any way. They’ve just done a great job for the builder and the builder knows they can trust them to take care of their clients. The second type of preferred lender is a lender that is owned by the builder or they’re tied together financially in some way. This is usually how the large national builders operate.
I also always here people say things like… “I have to use the preferred lender.” Please understand that the builder can’t force you to use their lender, but legally and ethically the builder can choose to only offer the incentive to those who use their lender.
You’re probably asking, how can the builders lender give me a better deal? Well, most preferred lenders will take a reduced commission because the builder is just giving them the business. It’s also common for the builder to contribute cash to incentivize buyers to use their lender. You should know that home builders want to make sure the preferred lenders are giving you a fair deal and if the builder believes their preferred lender is taking advantage of their clients they will replace them with a lender that will be more competitive.
So, what’s in it for the builder? They’ll know right away if a buyer isn’t going to qualify and they can cancel that buyer and move on. I have seen outside lenders give a loan approval to a buyer. The builder then builds them a home only to find out that the buyer never could qualify to buy that home. The builder now has a major problem. They have a completed home, with someone else’s selections and this completed home is costing them money every day that is sits there. If the home takes a few months to sell, it will end up costing the builder thousands of additional dollars. The other advantage to the builder is that they know the buyer will be ready to close on time, because the preferred lender is always up to date with the often changing closing date.
It’s going to be easier if you use the preferred lender because they're in constant contact, with the builder confirming the homes are on schedule to close. An outside lender doesn’t have all this information so they’re often not able to close on time. Some outside lenders do just fine and sometimes the outside lender can beat the deal the builder is offering you, but for the most part, it is going to save you money and time to use the preferred lender because they’ve streamlined the process.
Really, for the most part, you are better off to go with the builders preferred lender.