I’ve worked with several buyers over the years who after talking with the lender on-site at a new development have decided to go with the builder’s lender rather than myself. You can imagine how frustrating that can be, but, that goes with anything. In any business where there’s a commission, there is the risk that someone else will swoop in and snag your customer. So, with that being said, it’s important to talk about using a builders lender versus going with one of your own.
In just about every new development or subdivision there is a dedicated buyer’s agent and lender on hand ready to facilitate a real estate transaction. They certainly don’t want you shopping around going anywhere else. They want all of your business including the selling commission, the buying commission, and the lender’s commission if there is one. But if you think of it, who’s really working for the buyer? It sounds like a great deal for those raking in all of the commission but is the buyer’s needs really at the forefront?
New home developments and subdivisions are popping up all over California and across the country, for that matter. Our housing economy is in full force and new homes are being built every day. Builders are confident and feeling great about the new construction forecast and are offering buyers great deals. Tell me if this sounds familiar: the buyer is offering a $10,000 upgrade or closing costs if you use their preferred lender. That sounds great, right? I mean, who would want an extra $10,000 when buying a home?
Many buyers think there can’t be a downside but, you might get a better deal by avoiding their offer and here’s why.
This incentive severely limits competition from other lenders. The preferred lender could offer you a great rebate but also an extremely high-interest rate, giving you a little bit of money now but actually costing you thousands if not tens of thousands of dollars in the long run. For instance: $350,000 loan at 4.5% will cost you $17,000 more over 10 years that if you shop around and get a 4% or less. These free upgrades don’t necessarily sound so free anymore.
Also, builders usually get a kickback on the mortgage deal so of course, they’re going to do everything they can to persuade you to go with their lender rather than one of your own.
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That initial cost savings might sound attractive but when you think of it in terms of interest rates, you will be saving a lot more by going with your own lender and getting a better rates. Now, not everyone thinks the same. Many people really like that liquid cash upfront but are they willing to spend tens of thousands of dollars more and higher interest rates and knowing they’ve gone with a lender that really doesn’t have their best interest at heart?
Just as having your own buyers agent can save you thousands of dollars in negotiations and terms, using your own lender that can also save you money, get you the right program and rate for your needs and your budget can save you money in the long haul.
Those on-site lenders and agents might swing that shiny carrot in front of you every time you set for them a lot, but is it really worth grabbing on to what they’re offering?
My suggestion is to shop around, write down everything they are offering and check with a lender that has your back. You might be surprised at how much you really save by using your own representation.