Home Buying in Atlanta>Question Details

Chris Irvin,  in Atlanta, GA

Can't get approved with builders lender, but have approval from my bank. Can the builder refuse to accept my contract?

Asked by Chris Irvin, Atlanta, GA Fri Nov 8, 2013

This is a question on behalf of one of my clients. They have agreed to terms on the purchase of a new home with the builder but the builder would not execute the contract until they had an preapproval from their preferred lender. My client is self-employed and has had a banking relationship with our bank for over 20 years. The builder's lender could not approve them due to income but my bank has a program designed specifically for self-employed borrowers which they are easily qualified for. Can the builder refuse to accept a contract b/c the loan would have to offered from an outside lender?

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A seller can refuse a contract that they think has a low likelihood of closing, but they cannot insist that you use a particular lender.
They are in the business of selling homes so I would suggest that you ask the lender to call the builder (or vice versa) so the builder can feel more comfortable with the program and the buyer. There are enough flaky lenders out there that it can cause sellers to be very cautious about a lender that makes promises they may not be able to keep.
2 votes Thank Flag Link Fri Nov 8, 2013
Jimmy makes an excellent point - a thumbs up.

There's an interesting phenomenon with buyers and new construction homes I want to address.

Aside from the fact that the "builders" agent represents the "builder" - and is therefore legally duty bound to get the best deal and terms possible for the "builder", some builders do use sales staff that are not licensed agents, not well trained and therefore may not know various laws any better than the general public. To compound things, the generally "fair and balanced" GAR contracts are not always used by builders - many builders have custom contracts drafted blatantly in their favor and adverse to the buyer.

That combination can challenge even experienced buyers agents, but for an unrepresented buyer it can be a knockout blow. Just a few ways I see unrepresented "do it yourselfer" buyers get taken advantage of with new home purchases: they pay more money for their home, accept poor quality construction and defects easily deemed as builder "standard work" per the contract, they experience unexpected hassles and extended closing delays that can result in significant extra expense for temporary quarters - all with zero recourse!

Yet, interestingly, there has always been a disproportionately high number of buyers who walk into a new home sales office/model home and end up dealing directly with the builders agent on their own, versus the number of buyers who hire a buyers broker to represent them to locate and purchase an existing home!

You can sort of see a seller trying to go it alone - they believe they are saving a commission - but what's up with self represented buyers? As agents and brokers we know buyer representation is free - buyers save absolutely nothing by going it alone versus having expert representation - whether buying new or existing!

I think NAR had it right a few years ago with their campaign that essentially said: "Buyers and sellers don't know what they don't know." This applies doubly when it comes to buying a new construction home - see my link for just one example!

What do you think?
1 vote Thank Flag Link Sun Nov 17, 2013
The very first question you should ask your client, who is your buyers representative. Make certain your clients are being protected especially with new construction. Many builders use in-house sales agents, not Realtors and some are not even licensed agents. They may not know the laws. Any offer presented can be refused for any reason unless it is a violation of fair housing laws. The builder is not saying that your client is unable to get a loan from you, they simply want to make sure your client is well qualified so they can actually sell the house. Provide the builder with a loan approval letter and not just a prequalification letter. I am sure they want to sell the house, they just need more evidence of your clients ability to finance it. If they had a buyer rep, the buyer rep would have already taken care of that and it would not have been an issue. Good luck and it is good to know there are products out there for those of us that are self employed.
1 vote Thank Flag Link Sun Nov 17, 2013
Any seller can refuse a contract if they don't feel good about the buyers ability to close - or of course if the price and terms are not acceptable. I would suggest trying to offer more E Money - if you are sure the loan will be approved.

As far as legality goes, there is no meeting of the minds here. An agent can not refuse to submit an offer to a seller - even if the builder tells them not to accept an offer, for example if pre-approval is not through a preferred lender.

Good Luck
1 vote Thank Flag Link Fri Nov 8, 2013
Builders first priority is to get their properties sold. Using a preferred lender is always to guarantee that buyer is qualified and can close. But contracts are not based on using a specific lender. That would be illegal. Sometimes builders/sellers do not want to waste their time, so if their preferred gives them reasons why a buyer may not be able to close a deal, builders/sellers may refuse to accept an offer. But they cannot back out of an existing/accepted contract because of buyer's choice of lender. Buyer can sue for "specific performance" of contract.

1 vote Thank Flag Link Fri Nov 8, 2013
Many times they force you into using their lender by saying they won't pay any closing cost unless you use them. You would think if you had a pre-approval from another lender they would want to sell a house. Are they paying closing cost? If so, maybe try to change the terms where the buyer is paying their own closing cost.
0 votes Thank Flag Link Fri Nov 8, 2013
Yes, they can if they have made this a requirement up front. I would suggest to have the banker contact the builder (seller) to discuss the program so that there is a comfort level and see if that will work. Good luck.
0 votes Thank Flag Link Fri Nov 8, 2013
And let me say, the seller cannot dictate that your client MUST use their lender, but the requirement to get pre approved does weigh on the seller 's decision to accept the contract.They want to know, while they tie their property up in a contract, that the contract will close.
Flag Fri Nov 8, 2013
I think if you can provide a loan commitment and not just a pre-approval the builder would take that a little more seriously.
0 votes Thank Flag Link Fri Nov 8, 2013
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