Builder Incentives – Valuable or a Ripoff?

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Many new housing builders have their own lending arms now. Not only will they build your house, but they offer you the convenience of getting your loan through them.

The Advantages

This lowers the number of players trying to get your home loan done, which in theory may make the process smoother. The builder's lending arm is expected to be able to work better with the builder, so you do not have last minute hold ups on your loan. Some builders will cancel your purchase contract if your loan documents are not generated in time. This can really hurt if you signed a purchase contract for a property to be built and its price has risen significantly in the period before it was finished. That can be a lot of lost money.

Many builders offer "thousands" in upgrades as an incentive to use their lender. Some of these incentives may be valuable – such as a full set of upgraded kitchen appliances. Many of these upgrades that are marked as worth "thousands" are heavily marked up, and as such, are not as valuable. Examples of this are $ 500 grout sealing options for kitchen tiles, something which you can easily do for much less.

Prequalification

Many lenders will require that you be pre-qualified by them to make sure that you are credit-worthy and able to actually buy their homes, not just sign contracts. Some will accept written pre-approvals or pre-qualification from third parties. They usually try to get as much of the loan business as possible. This prequalification process allows them to sell you on their loan offers.

In the end, some people and their spouses can not resist builder incentives. This becomes an emotional rather than financial decision.

Drawbacks

For starters, the builder's lending arm may not have the full range of loan products out there. Each month new loan types are offered by other lenders.

Your builder may not be able to get you the type of loan you want, such as a minimum option loan. Some builders may claim they offer every type of loan out there, but they should prove this to you. Their definition of "everything" may just be the loan types that they usually use or know about.

The builder's rate may also be higher, or their fees may be higher. Their offer to cover some or all closing costs is something you may be able to structure with an outside lender.

It is usually a good idea to get outside offers on your mortgage. If for nothing else, you can use this for leverage to see if you can get a better deal from the builder.



Source by Ben Afzal

 

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