Mortgage from the Builder - suggestions please

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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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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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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j, , Denver County, CO
Tue Dec 2, 2008
Hi Kris

In Spokane WA thiss is the advice I would give my clients and you should check with yours to see if this applies to your situation. To compare apples to apples your good faith estimates (gfe) should be asked for on the same morning or afternoon to be sure the lending institutions are using the same base rate. The builders lender will prob be able to give a better deal on the appraisal fee as they may have had the whole development appraised and may have other "bulk dicopunts" that you will benefit from possibly in the form of "paying some of your costs". Just remember to take your good faith estimate to closing as any changes to that should have been disclosed to you prior to the closing table and if not you may not need to pay them.

The lender will arrange for an appraisal ( a cost to you the buyer) to verify the value of the property that you are purchasing and any work that you may have asked the builder to do prior to closing.

A home inspection is a private contractor that you the buyer select and pay for to get an independent 3rd party inspection of the condition of the contruction. In this area, this includes checking the plumbing, electrical, heating and so on. I always reccommend this - it is an extra expense but compared to the investment you are making it is well worth it. Yes the builder may say he comes back to fix anything but do you want to live thru the dining room ceiling coming down because the bathroom shower was not water tight? (actually happened to a client of mine who decided not to do a home inspection on new construction) You will have much more control on what happens before closing, before the builder gets his money than later. Also in this area some builders are experiencing long delays in getting fix up done after closing as they do not have the crews they had on call 6 months ago so chat to other buyers in the development to see how the builder is responding right now.

I have no experience with that lender, again maybe other buyers in the same development have.

HOA start up fee is a Home Owners Association start up fee. Each HOA has its own rules how the fund is started, the builder usually runs the HOA until a certain % of homeowners have purchased and then the rules for how it is run and the actual rules of the HOA , ( or C,C & R's codes covenants an restrictions). It would be a good idea to review a copy of these if you have not already to make sure you are comfortable with the rules. Things that generally occur, again in Spokane WA, no change in paint color without architectural committee approval in writing, same for fences, no garden sheds, no vehicles parked on hte street for 24 hours plus, any boat/ trailer parked behind side fence not on driveway etc.
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Mattye P. Sm…, , Dallas, TX
Tue Dec 2, 2008
Hi Kris,

You must carefully weigh your choices...low rates and sellers contributions are only part of the overall decision.

I suggest you have a knowledgabe lender compare your estimates. If you need recommendations contact me for a referral.

Best regards,

Mattye P. Smith

American Realtors
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Dallas Texas, Agent, Dallas, TN
Tue Dec 2, 2008
I am a Dallas realtor and Dallas home loan mortgage officer.

SUGGESTION: Take all your GFE place on an excel spread sheet compare apples to apples many times there can be a bait and switch you wont know till you get to closing .

BUILDERS: Do have relationships with title companies there could be a savings HOWEVER how much with the overall cost of a loan.

REALTOR: Never purchase a home from a builder, seller, listing agent UNLESS you have your own realtor to represent you, we have a team of professionals who all work on your behalf NOT on the behalf of the seller. MOST of times ends up in extreme misunderstanding with an unseasoned buyer at that time its too late for a realtor or attorney become involved.

BUILDER CONTRACTS: can be extremely tricky unless you know about real estate contracts in most instances they are authored on the behalf of builder not the buyer. If you dont close on a timely manner although using their mortgage company you can loose all your earnest money.

GREAT you are investigating prior to signing any documents.

Contact my office if I can be of any further assistance.
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Jeff Kessler, Agent, Austin, TX
Tue Dec 2, 2008
1) I have found that the builders mortgage broker has higher closing costs, but by using their lender they the builder pays a lot more closing costs. So it usually equals out.
2) I would always recommend a home inspector on a new home, just because it is new doesn't mean it will not have any faults.
3) I closed 4 meritage homes in Dallas this year and their lender was good. Kept me informed
4)This is a fee for a new HOA to build up their reserves

If you have any other questions please email or call me.
Have a good week.
jkagent at
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