Home Buying in 20165>Question Details

Newbeebuilder, Home Buyer in 20165

We prequalified for a mortgage, the builder insists that we submit an application and get preapproved by their designated lender. Is this legal?

Asked by Newbeebuilder, 20165 Sat May 26, 2012

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Steve Quintana’s answer
Good question. I hope someone knows if this is contrary to a statute, rule or the common law.

Another question is what is the practical effect of requiring an application and preapproval, but you did not ask that question.
0 votes Thank Flag Link Sat May 26, 2012
Have found out also, that even if you do have a mortgage qualification letter and a loan commitment most builders will require that you still get approved by their designated lender period. To do any contract. However, found out the hard way that some, Fischer Homes of Greater Cincinnati, in particular, will sign a contract then take you all the way to the sign off on blueprints then cancel your contract because their lender doesn't trusts the mortgage you have obtained if you didn't use Victory Mortgage. Wasting months of time and effort. Don't know if it was legal but not a very professional way to do business. Fischer should be upfront about this fact from the beginning.
0 votes Thank Flag Link Fri Mar 18, 2016
I'm not an attorney and cannot offer legal advice, but it's my opion that iit is legal, atleast here in Florida.
0 votes Thank Flag Link Sun Jun 3, 2012
The builder will be a lot more user friendly than the mortgage companies. They will offer more incentives and willing to pay all or most of the closing cost.
0 votes Thank Flag Link Sun Jun 3, 2012
If you are planning to buy a home in the builder's community and there is no cost to apply, you lose nothing to apply. The builder may offer a better rate or plan than your bank and be willing to pay some closing costs. They want to see if you are credit worthy.
0 votes Thank Flag Link Sun Jun 3, 2012

Builders can require you to get pre-approved with their designated lender BUT they cannot require that you use them. Usually they will give you incentives and bonuses to use them in the form of "free" options and/or closings cost assistance but it really depends on the builder and how well they're selling.

I've been away from NOVA for so long now I am not quite sure how the Sterling/Loudoun market is...when it was slow in '07-'11 the builders would still give you incentives but allow you to use who you wanted to but even then they required that you get a cross approval through their lender. This protects them and makes sure you're truly qualified.

Good luck on your new home purchase!

0 votes Thank Flag Link Sun May 27, 2012
Here are my feelings about your question....

If you are preapproved already with a lender that you are comfortable with, you need to have your agent tell the builder's rep that you are going to use the lender of your choice as that is the law. You do have the right to choose your lender. However, builders use certain lenders as they have a relationship with that lender, so they can sometimes give you more incentive money as that lender will offer it and the lender you were previously wanting to use do not offer the same incentive. Also, the builder is more comfortable using that "preferred lender" as they will fire that lender if a deal falls through, so that lender is going to be more diligent in getting the loan to close so that they do not lose that business or the relationship they have with the builder as they give them a pretty steady stream of business.

Compare offers, but if you do not want to work with the builder's preferred lender...you should not have to. RESPA laws state that you can pick your settlement provider and your lender...your choice. Not someone that the seller/builder wants you to use. Have your agent "remind" the builder's rep that you have a choice...period.

Good luck with your purchase.
0 votes Thank Flag Link Sun May 27, 2012
Newbeebuilder, make sure that your agent researches this builder, their lender, their title company and the history of their sales. He or she should be reading all the contracts with you, reviewing their addendums, answering questions, looking at comps, and making sure you are getting a great home for a fair price. Your agent can then advise you if this builder is doing anything that is not Legal. Good Luck
0 votes Thank Flag Link Sun May 27, 2012
Yes it is and it happens all the time with builders and when buying a foreclosure/bank-owned property. The builder can not force you to get your loan through any specific lender in order to buy the property. But they can require that you get pre-approved through a lender of their choice which they trust in order to make sure that you are in fact actually able to qualify for a loan.

Danilo Bogdanovic
Real Estate Consultant/REALTOR(r)
0 votes Thank Flag Link Sun May 27, 2012
They still cannot force you to use their lender. They make you sign a disclosure that you are aware that there is a business relationship. If you only ask the lender to prequalify you, there should be NO fees. I always ask my buyers of new homes to talk to their own lender and look at loan scenarios, then they can compare with the builder's lenders, and then they can make an informed decision as to who they wish to use. BUT the choice is yours. So do not use their lender, just get prequalified and then use your own lender.
Flag Sun May 27, 2012
what happens when fees are involved. the builder clearly states in the contract that they have a business relationship with the lender. IMHO, this is a form of steering which consumers are protected under law.
Flag Sun May 27, 2012
The builder can do that to make sure you have the funds to purchase the home you contracted to purchase. However, they cannot force you to use their lender, unless you decide there is a financial (or otherwise) benefit for you. The same goes for the Title Company.

One word of caution: By allowing the builder to pre-approve you, you do reveal your personal and financial information to the builder's lender. Make sure, it is not used against you. Ideally, the other party, seller/builder, should NOT have access to the buyer's financial or personal information.

Good Luck
0 votes Thank Flag Link Sat May 26, 2012
Hello Newbeebuilder. Just about all new builders require that you get prequaified by their own lender. So do foreclosure banks! They will often also try and convince you to use their Title Company. If you wish to use them, check to see what incentives the builder will offer you, and make sure that the fees you are paying are fair. Good Luck
0 votes Thank Flag Link Sat May 26, 2012
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