Financing from builder

Asked by kris, Keller, TX Tue Dec 2, 2008

I am shopping for a mortgage lender for my new construction house in Keller. Meritage Homes is the builder. I have Good Faith Estimates from Bank of America, WellsFargo and Builder's Mortgage finance institution. Since the rates and closing costs are almost same for all the three, and also since Builder's Mortgage financing will bear some of the closing costs, it definitely looks like builder;s mortgage is the best option. (I have to say, BOA was on the higher side too) Now I am not sure, if there is a catch in this. My questions are:

1) What are the disadvantages of financing the mortgage from the builder itself if the numbers are competitive with tranditional bankers?
2) If I go with builder financing, do I need to arrange for another home inspection and/or home appraisal of my own?
3) Anyone has any feedback on Meritage's Mortgage Financing company
4) What is 'HOA Startup Fee' for $750 in Good Faith Estimate provided by the builder?

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T.E. & Naima…, Agent, Dallas, TX
Sun Dec 14, 2008
Bank of America tends to be conservative in their estimates. The builder's mortgage company, MTH, will likely do everything in its power to close on time. The other lenders may or may not actually close at the time and under the terms show in their GFEs.

Remember that an estimate is still just that, an estimate. Some borrowers expect that the cash to close will not vary from what they were told, but the reality is that it can. A last minute surprise of a few thousand dollars can really wreck your plans. A few lenders guarantee their estimate. Some may tell you they can close in 10 days and then 8 days later say it will be next week. Don't be surprised.

Closing costs will vary based, first on the exact date of closing, because daily interest is charged until the end of the month of closing. A lot of lenders use the 15th and don't adjust their prepaid interest number to match the actual anticipated closing. Other lenders will estimate insurance lower than you might be able to locate. So, remove prepaid interest and insurance and compare all three again. Taxes and other costs should not vary on what is left. If MTH is still lower, then it is likely the best deal, provided there are no discrepancies in the documents delivered to the title company. Yes, occasionally some lenders quote one rate and then the documents show a different rate on the note.

If you see different charges among them, like one charges an administration fee, and one charges a high tax certificate fee and so on, those are what you are comparing. You will get your own insurance and it would be the same number in all 3 scenarios. The daily interest, similarly, would be roughly the same for all of them on the same date of closing.

But, having disposed of variances in timing and actual costs, if the MTH GFE looks the best in terms of cash to close and monthly payments, then it probably is. (Remember to back the daily interest unless it is calculated for the same closing date by all 3, and to back out the insurance unless it is the same estimate for all 3.)

Shop around for insurance to get a decent provider. I can suggest one we often find is the lowest.

Some types of loans require specific appraisal rules, like FHA, and VA requires your lender to use a particular appraiser assigned by them. Inspections are your choice. On a new-build you can simply wait until near the end of the builder's warranty on the house, usually a year, and bring an inspector in to catch any defects you have not already uncovered yourself and had the warranty department fix.

It's probably too late to bring a Realtor in to represent you, since you are about to close, but for next time, take advantage of Realtors' expertise -- it doesn't cost you anything and often can reduce your sales price.
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T.E. & Naima…, Agent, Dallas, TX
Tue Dec 2, 2008
HI Kris,

Congrats on your new purchase. Meritage is a great builder.

1. There is usually no downside from using the builders lender. They use MTH which is owned by Meritage. You'll be signing a bunch of disclosures at closing to the effect that you are aware of that. They are usually competitive as well as you see from your GFE.
2. You don't have to get another inspection or another appraisal. Only one no matter which lender you choose. The only exception on the appraisal is if one lender has ordered one and now you are switching lenders or if the type of financing is changing such as switching from conventional to FHA or VA etc. then a new appraisal has to be done.
3. The HOA start up fee is a one time fee charged by the builder to form and implement the HOA. The annual HOA fee should be separate. You may need to negotiate this fee with MH.

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Cindie Stewa…, Agent, Keller, TX
Thu Dec 18, 2008
There are some new bills going into place if voted in that builders relationship with Lenders and Title companies are going to be changing.
However, we just closed a home with them in Keller and the clients were very happy with the lender at Meritage.

Don't just look at the rate, but all the cost. Sometimes they will charge you a slight higher rate so they can roll in some of those extra cost. Either way you are normally going to pay it just depends how you are going to do it. Rate VS Closing Cost. It is a pay me now or pay me over the term of the loan.
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Bruce Lynn, Agent, Coppell, TX
Tue Dec 2, 2008
1. If all are priced the same, I might tend to use builder financing. They may have better commincation with title company where they close 100s of homes as well as a coordinated effort between all major parties to get the deal done. This is rare in my opinion that all 3 would be very competitive. Could be, but there is usually some spread. There may be more to rates and closing costs though. What about rate locks?
2. Disadvantage to using builders lender is what happens if their good faith estimate is not what is good at closing and loan will likely be sold at closing. Your financial information is perhaps less secure if anything goes wrong and you need to neogaiate something out of the ordinary. Maybe even too late for that now.
3. ALWAYS do a home inspection, no matter what lender you use. Really two separate issues.
4. They will do the appraisal for you. It's more for them, than for you. Builder appraisals are almost always off. Most buyers in a new neighborhood pay more than the house is worth, but that won't be reflected on the appraisal.
5. HOA startup fee is in the HOA docs. You might want to read them, before you sign.
6. ALWAYS use a realtor when purchasing a new home. They'll answer all these questions for you and many many more. They may even have contacts who can give you better financing. I just saved one client over $5500 on his financing by using my main lender contact and this guy was a real shopper.
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kris, Home Buyer, Keller, TX
Tue Dec 2, 2008
Thank You Lori Lewis, it helps.

John, I am nearing completion and closing on Dec 30th.

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Lori Lewis, Mortgage Broker Or Lender, Bethlehem, PA
Tue Dec 2, 2008
I will try to answer your questions one at a time

1) None, as long as the builder is not offering you incentives to close with them and disguising it as a seller assist

2) None, sorry

3) The Start up fee is for the homeowner association and since its usually collected quarterly, it is probably to get you prorated and current for next quarter
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John Brown, , Overland Park, KS
Tue Dec 2, 2008
Are you nearing the closing date for your transaction or are you just starting the building process?

John Brown
Mortgage Lending Officer
National Bank Of Kansas City
(800)375-8096 ext 0147
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