New construction and condo conversions, however, have a few more requirements for approval. One lender I have been working with on a condo conversion I am doing now has agreed to finance buyers once we have two "pre-sold" units. This lender will approve the building in advance of the buyers coming in, and will then review each buyer individually and provide loans for that buyer to choose from based on their specific needs. If that same buyer went to a lender who hasn't preapproved the building in advance, that lender might not fund the loan for the buyer and unfortunately, this happens all too often.
While I agree that all good faith estimates, rates and fees should be checked by other professionals in that field, there is a reason for preferred lenders and if the buyer finds the rates and fees don't match what they are hoping to find, the condo/new construction home might not be the right one for them.
Having said this i do believe that new construction single family residences are much more liberal in terms of lender requirements, and the buyer has much more latitude when it comes to making their lender selection.
I recommend to all my new construction buyers to shop the preferred lender's rates and programs. Sometimes they do have a great deal, other times you can easily see where they're making up their rebate from.
From the builder's perspective, they would rather buyers work with their lender because of control and they know what to expect from their preferred lender. They can call the lender and check on status of a particular buyer and they can push the lender when needed.
A note for buyers working with a builder's preferred lender. Make sure the lender is still working and earning your business. I've dealt with some where they know they've got the deal already and then the buyers become distant priority. Calls and emails aren't returned in a timely manner anymore, info they give is wrong or incomplete, etc. etc. If that happens, tell the builder. Have your agent tell the builder as well. Just cause the lender thinks the deal is in the bag does not give them an excuse to slack off.
I just sold a DR Horton house and we ended up using the seller's preferred lender because we were able to get some other considerations in exchange. I guess the best way to answer this question is to go back to basics. What do you have to do to get the best deal for the client? Will using this lender benefit the client more than not using the lender?
I've seen a few purchase and sale agreements in which the listing agent takes it upon him/herself to require the buyer to get prequalified with a lender affiliated with the listing agent's brokerage (Some John L Scntt agents do this, I believe). Usually I just ignore that because I can find a better lender for my client, but like I said above, if it works out to my client's advantage then I'm all for it.
Otherwise, its the buyer choice.
These incentives are collusion, coercion, smoke and mirrors. I cannot believe it is legal for the incentive to be tied to a lender and that the customer cannot use whomever they wish for financing and still receive the incentive offered.
The only reason there is this requirement is because it places greater control over the customer to get them to do what the builder wants. By keeping all of the business in the same family it increases profits. It has artificially increased the value of homes because these â€œincentivesâ€ are used to pay costs. The higher interest rates for the customer makes for a higher yield loan in the secondary market further increasing the builderâ€™s profits.
This is not consumer friendly. It does not build relationships. It further supports the consumer image that Realtors and Lenders are little more than used car salespeople. If it isnâ€™t illegal it ought to be.
Lastly, I would question appraisal, or is one even being required?
I understand that a lot of builders will have all the best motives and actions, however, I TRULY believe all buyers need representation from a highly qualified real estate agent, that could, answer this question depending on the arrangments.
Thanks for making Trulia such an awesome sight. It is good to see legitimate real estate conversation going on from such honorable people in our diverse profession with very diverse points of view.
Awesome question and great answers.