Home Buying in Cleveland>Question Details

Lisa, Both Buyer and Seller in Cleveland, OH

How much does a builder profit when you are using their lending program?

Asked by Lisa, Cleveland, OH Wed Feb 11, 2009

If you use a builders lending program, does the builder in the long run make a fairly good profit from that, versus a buyer going to another source? I would suspect that it is a benefit (potentially a fairly big benefit) for the builder for buyers to use their programs. I would see that as buyer power for negotiating.
Any comments on this would be great - even if you have a general idea on how much they profit in the long run (ranges). Thank you.

Also, we dont have a realtor. They wouldnt let us bring one in - it was too late since we already had registered and met. I am trying to gather as knowledge as I can to have a good background on the offer we make to build.

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Hi Lisa. Ask the builder's lender for a GFE (Good Faith Estimate). The GFE details all the charges the lender and the title company will require to do your loan. Now, I don't think that yeild spread shows up on the GFE, but it does show up on the HUD-1 document you get just a few days prior to closing. A yeild spread is a dollar amount or percentage that the loan originator gets paid on the "back end" in addition to the loan origination fees and processing fees you'd see on a GFE.

I'd recommend just throwing out a direct question to whomever they are having you deal with. I'd also recommend shopping around for the best possible scenario for you. As long as it's not costing you anymore in the long run, go w/ the builder's lending program, but do your homework. It could save you in the long run.

Just a note on your final paragraph; the reason they won't let you bring in a realtor now is because they don't want to pay one. Generally a realtor needs to register their buyer prior to seeing the builder. It costs the builder money to deal with a realtor, but they generally like to maintain good relationships w/ realtors, because we drive a ton of business their way.

I hope this is helpful! Feel free to contact me w/ any additional questions.
1 vote Thank Flag Link Wed Feb 11, 2009
Typically, builders have "relationships" with lenders (like Ryan has with NVR) where they will give you incentives such as finished basements or other perks if you use their lender. Up front, it sounds good. But you better believe that they do make up for giving you that freebie in the long run! I don't know of any specifics on dollar amount, as that can vary between builders and what their giveaways are.

Also, they are VERY eager to work with unrepresented buyers as they are able to make more of a profit on you! And the fact that you don't have someone behind you watching your back... even better!

Good luck to you in your pursuit! If I can be of any further information, please contact me!

Art Hotes ~ RE/MAX Classic
Certified Negotiation Expert, e-PRO REALTOR
Web Reference: http://ArtHotes.com
1 vote Thank Flag Link Wed Feb 11, 2009
Lisa:

Using builder financing is highly profitable to the builder and is not always in your best interests. If you are able to recieve a percentage off of the house in lieu of the financing, you may be better off. You should do a comparison between the special rate and market rates and the difference in price to see which is better.

Sometimes it works out better to take a lower rate and higher purchase price which is why the builders offer the special financing. (then they can sell you a more expensive home) I would ask for a discount if it were me.
0 votes Thank Flag Link Wed Feb 11, 2009
lisa I think it is what it is,if they are offering 4.5 @ 30 yr fixed then why wonder if they are making any $ it their as a benefit.Builders buy block of money,w/o going into detail,but if they can beat your bank then why not.

TJ
Web Reference: http://tjroberts.remax.com
0 votes Thank Flag Link Wed Feb 11, 2009
Lisa- Many builders are affiliated with the lender that they promote. Therefore, the builder shares a portion of the profits of the lender. Lenders and builders are in business to make a profit. However, that shouldn't really concern you. You should be able to secure financing through a lender of your choice - if you can find a better loan than what the builder is offering. What's your real concern? You don't think that you're getting a fair price?
Web Reference: http://www.321advantage.com
0 votes Thank Flag Link Wed Feb 11, 2009
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