In the era of strict regulatory oversight it’s unfair that builder’s can operate under a different set of rules. The fact that builder’s can all but force Arizona home buyers to use their lender is appalling. Typically, significant financial incentive is the the builder’s weapon of choice is to “entice” home-buyers.
This creates an unlevel playing field between builder lenders and outside lenders. Builder’s offer price reductions, credits toward closing costs or credit toward upgrades to lure buyers to use their preferred lender. Of course they still say the buyer is “free to choose” their own lender. That is if you define “free” as giving up thousands of dollars in incentives. That is likely the most expensive “free” in the history of free! Sorry, my soap box is being put away right now. As a result, a buyer concedes and gets a much better deal than if they utilized their own lender. Okay, now the soap box is really back in the garage, I promise.
What if the Builder’s Lender Cannot Approve You?
Sometimes a builder’s lender cannot close a borrower’s loan. Then what happens? Oftentimes a builder would rather sell a home than lose the deal because of their in-house lender. As a result, builders will often allow the buyer to give an outside lender a shot with the incentive package intact. The borrower would then still receive builder incentives such as price reductions and credits AND they can use a lender of their choosing.
Many times (and I am speaking from experience) an outside lender finds solutions and close on a home loan that the builder’s lender could not for a variety of reasons. Here are a few examples of those reasons:
1. Different Arizona mortgage lenders have different loan guidelines
2. Different Arizona mortgage lenders have relationships with different investors (for example our relationship with Fannie Mae and Freddie Mac allow us to do some very unique things).
3. Loan officers have different skill levels/experience. Where one could not find a solution another may be able to.
Document the Builder is Transferring Incentives
If you have ever gone into a new build office you know about the registration process. I cannot stress how important registering your Real Estate agent is. If you do not register your agent you will most likely not be able to go back and do it once you have started to move forward with a builder. Registration simply means you have given your real estate agent permission to represent you. Having a Real Estate professional representing you is extremely important for several reasons. One of those reasons is if the builder’s lender cannot approve you. Your Realtor would make sure that an addendum is drafted transferring the incentives that were tied to using the builder’s lender over to your outside lender. This is a VERY IMPORTANT STEP!
The bottom line, (and as much as I don’t like to say it) start with the builder’s lender, but ALWAYS have a contingency plan. For example, having a backup lender you trust. Sometimes builders will have a list of approved back up lenders that you MUST go through if their preferred lender cannot get the job done. However, many builder’s will allow you to go outside and use your own lender when the builder’s lender cannot get the job done.
By Jeremy House