Should I use builder's preferred lender?

Asked by Bobaboba, Los Angeles, CA Thu Jun 18, 2009

We are in process of buying a unit in a new construction condo in Southern California. We have our own lender, and rate locked. Escrow has been open for a week or so. Builder has a preferred lender, but told us that we can use our own lender anyways. Today I got a strange call from the inhouse lender, saying, "oh, we are working on the project loan with bank xxx. the agent at bank xxx reminded us to let you know to make sure if your current lender is obtained through retail or wholesale. If it's retail, there will be problem closing. You can only close on a loan obtained through wholesale." and the funny thing is that, our lender and their lender are both bank xxx. This sounds a false impression to me that the inhouse lender was trying hard to get our business. But at teh same time, i hope we dont let this fall trhough the crack (if there's a crack of such). Anyone please offer advice?

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Cindi Wolf,…, , Lancaster, CA
Tue Jun 23, 2009
Hi Bobaboba,

I worked for Builders for 4 years and maybe I can shed some light on the issue for you...

First of all, Retail loan is when you go to a bank branch, etc and apply for a loan yourself. Wholesale is when you go to a Mortgage Broker or a Builder and they run the loan through a bank or other such lender. They are 2 different animals and they can take different time frames, as they go through 2 separate processes.

A Builder uses an "In House" or "Preferred Lender" because they have pre-arranged Escrow and Title and have a dedicated team at the Lender specifically for that Builder. This streamlines the process and the Builder can actually push them to close by a certain date. Whereas, the retail side cannot move as quickly because they have more loans and they are distributed to various units for processing, etc. Builders cannot control the time frames.

Get the Good Faith Estimates from both if you can and see where they stack up. Also, the Builder usually offers "incentives" or "closing cost assistance" if you use the Preferred Lender. But, they may not offer them if you use an "Outside Lender" or "OSL", because it can be difficult for the OSL to close when the Builder needs them to. Yes, even if both are the same bank.

I hope this gives you some insight into what is happening for you. I sold many homes using both types of Lenders and it is very difficult for an OSL to make up for the incentives (usually thousands of dollars) that you would get from the Builder using a Preferred Lender. Understand that no one can tell you who you can obtain your loan from and in today's loan market, the loans go through either Fannie Mae, Freddie Mac or only the remaining well known banks as a general rule.

Good luck and I wish you the best in your new home. If I can be of further assistance, please feel free to call.

Cindi Wolf, REALTOR, CMS
Century 21 Yarrow & Assoc.
44143 20th Street West
Lancaster, Ca 93534
661-609-9392 cell
661-422-3001 fax
1 vote
Lyndee Bolin,…, Agent, Jensen Beach, FL
Thu Jun 18, 2009
I agree with your impression about that phone call. You could call your lender and ask them if all is going well. Have you received a commitment from them?
Do you use Ttile companies out there? Or who does your closing paperwork? You could check with them also.
1 vote
John Sefton, Agent, Long Beach, CA
Thu Jun 18, 2009
The special terms could be for the Buyer and may include, for example, slightly lower inerest rates, lower costs, free appraisal, rebates, etc. But whatever they are, the Lender not only should, but is required to give you the information. There are many disclosures required on home loans, including the estimates of costs and rates.

You should be able to get good faith estimates from both loan agents so you can compare them side by side. They are estimates that can be subject to variation, but they should be reasonable close to your final figures when you close escrow.

As far as not being able tgo close with the loan from the branch, address that issue with your Realtor, if you have one representing you, and the branch office to see what they say. If still feel uncomfortable, you may want to consult an attorney.
0 votes
Bobaboba, Home Buyer, Los Angeles, CA
Thu Jun 18, 2009
To John,

How would the developer's special financing arrangements affect us buyer? There's no special term or instruction put down on the purchase contract that indicates we need to follow any specific financing arrangements.

It doesnt click when I was told by the in house lender that if i go to the bank today (the branch office) and get a loan there, it will not be able to close on this property. Especially when I asked my agent to call this inhouse lender to ask for specific information, she didnt give much information. Instead, she called me after finish talking to my agent, telling me that involving an agent will not help. i need to verify with my lender if it's a wholesale loan i just doesnt make any sense to me. Then she pulled out a statement "the project loan may take 6 months to complete..." (2 months from now to close based on the contract we were given by the selling agent) That's becoming more shady...
0 votes
John Sefton, Agent, Long Beach, CA
Thu Jun 18, 2009
It is not unusual for Developers to obtain special financing arrangements from wholesale departments of certain Lenders on new developments.
0 votes
Dyanna, , California
Thu Jun 18, 2009
What has your agent said about this? Do you have an agent representing you and your interests? Usually your agent would be better suited to answer this question as we don't know the policies of this builder.
0 votes
Sarah Solomon, Agent, Greenwood Village, CO
Thu Jun 18, 2009
The does sound odd- retail vs. wholesale...what is that? I would ask to speak with their boss for clarification, have them put it in writting and then send to your prefered lender to get his thoughts.
0 votes
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