Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: Builder's Incentives Tied to Mortgage Companies No Longer... if passed

Builder's Incentives Tied to Mortgage Companies No Longer... if passed

In my 9 years of real estate, I have helped clients buy their fair share of new construction homes.  I'm with them through the entire process, no matter where we start in the construction phase. 

Family buying new construction houseSome buyers build from the ground up, and I'm there to help them pick the perfect lot.  Things to think about is to help your buyers realize why no one has bought "that" lot over there, and why "that" one has a huge discount on it... I help them realize which lots within the community will have the better resale value.

Then, you have some buyers who are buying inventory homes, but there is still time to pick out the interior options like carpet and tile.  It's always good to have me as the unbiased third party helping pick out complimentary colors.

Some buyers are buying homes that are completely finished and all they require is a walk thru and a closing date set.  I'm still there to help catch all the touch-ups that need to be done, and help ensure my clients are getting the best deal I can get them.

No matter what type of buyer on a new construction home you are, most builders are going to throw incentives at the buyers along with letting them know about their own Builder's Mortgage Company, either one that the builder owns, or one that the builder is affiliated with.

Mortgage companyOver the years, in my experience, the builder's mortgage company has always been very competitive.  There was only one time where the mortgage company couldn't get my clients approved, but since I always ensure a pre-approval before we look at houses, I knew they were approved with an outside lender, and the builder allowed us to use them in addition to receiving the incentives offered with their mortgage company.  Otherwise, rates and fees have always been compared and competitive...

Until my own experience with my own brand new house.  In the contract of my brand new construction house, I wrote in there that I could use an outside lender, just like I have the builders do with my other clients, so we're all protected for the "just in case" situation.

In applying for a loan with the builder's lender, they verified that my husband's and my credit scores were well over the 800 mark, which concludes awesome credit!  With that, you would think we would be given the absolute best rate from the builder's lender...

Not so fast... The builder's lender actually had me paying 1.687% more points for the same rate as my outside lender quoted me.  Huh?  Do you know how much money that equates to?  That equals over $6100!!  No, that's not a typo.  Why in the world would I pay an extra $6100 for the exact same rate as another lender?  I called the manager of the Builder's mortgage company, and after a very nice conversation, he politely explained that there was nothing he could do.

Mortgage approvalI took my business to the outside lender and still retained my builder's incentives, but the builder's mortgage company didn't realize I would be able to do that.  What does that matter, you might ask?  They were quoting me a rate and fee with the anticipation that I wouldn't care about the fees because the Builder was paying for it... And?  So?  The builder will pay for it with my outside lender too!  That shut them up...

All this to say that I can't believe that in all these years, I never ran into this situation with any of my clients, but when it comes down to my very own new home purchase, I get put in this situation.

This is also all to point out about the new legislation that is going to take effect come this summer, July 16, 2009, to where the Builders can no longer offer one incentive to use their own mortgage company and another incentive if you use an outside mortgage company.

John Jones with Homewood Mortgage in Dallas, TX explained the situation in great detail in his blog titled,  HUD Suspends New Rule That Would Have Outlawed "Required Use" of A Builder's Affiliated Mortgage Company.  Give it a read and let me know your experience with working with Builders and their own affiliated mortgage companies.

And when you're ready to buy that new construction home, make sure you have me working for you on your side. Give me a call!

**Are You Packed Yet?**

Donna Harris, REALTOR®
RE/MAX Austin Skyline

Austin, TX and the surrounding areas of Lakeway, Bee Cave, Westlake Hills, Cedar Park, Round Rock, Spicewood, Circle-C, Steiner Ranch, and everywhere in between... Whether you're buying or selling, I'll be with you through the entire process.

Comment balloon 13 commentsDonna Harris • April 12 2009 02:03PM


Donna - I recently did a deal with a major builder. I asked.. "what incentives do you have for buyers?" He stated .. "if you use our lender" I said... what about that law that says.... I was interrupted with.. THAT'S ON HOLD!

I'm not to keen on lenders who broker out the second lien as I find it normally comes with separate junk fees.

Anyways.. good post, sorry for being off topic.

Posted by Greg Nino, Houston, Texas (RE/MAX Compass, formerly RE/MAX WHP) almost 12 years ago

Greg, It's not "off topic".  It's right on topic as it's about the builder incentives.  It is "on hold" as the legislation was supposed to take effect in January, and then it was pushed to April 16, and now it's July 16. After July, I doubt it will be pushed off any longer and the builders will have to find a better way to get buyers to use their mortgage company.

Personally, I see many builders getting out of the mortgage business all together and selling that entity, if they own it and not just affiliate with one.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - almost 12 years ago

That new law Donna does seem like it makes it more a level playing field with all the lenders.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) almost 12 years ago

I have a listing for a new condo building.  We don't tie anything to our "preferred" lender however since we are a condo buyers are finding that their own lenders won't write the deal.  So we always ask that they make contact with our lender as a back-up.

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) almost 12 years ago

Gary, Yes, but in actuality, it should always have been a level playing field as long as everyone is quoting and giving competitive rates and fees.

Cindy, You're right that many lenders aren't loaning on Condos right now, so it's good that your buyers have a backup.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - almost 12 years ago

I have seen people take a beating on the loan to get the incentives. And their weak realtors couldn't help them.....

Builder's lender is never the best rate/fees. But usually fair. Sometimes they aren't even close though.


Posted by Tom Burris, Texas/Louisiana Mortgage Pro - 13 YRS Experience (NMLS# 335055) almost 12 years ago

Donna - I don't fault the builder for wanting the 1 stop shop opportunity. However, I see it as bundled interest that can't possibly be best for the consumer on a consistent basis. I never allow the dealership to provide financing. Same thing with department stores. 

The best words uttered from a builder to me were.. "we sell houses, not loans." I wish they all shared this sentiment.

I just love builder appraisals. In another situaton I pulled the "comps" for a new construction neighborhood and they were ALL 15% or more BELOW what the builder was trying to shove my buyer. I called the lender for the builder and he said.. oh, no worries man - we can make adjustments because the house your buyer is purchasing is NEW.

15% ???

You know how I feel about builders Donna.

Posted by Greg Nino, Houston, Texas (RE/MAX Compass, formerly RE/MAX WHP) almost 12 years ago

Donna - I wrote about the coming change awhile back and can't believe how they keep holding it off for a little while longer.  If you ask me, its absolutely ridiculous.  One of my favorite things is that the builders actually argued that taking this ability from them would hurt competition.  How can competition be hurt when you're finally allowing people to compete for the loan?  I can't wait to see this go the way of the dinosaur, its a bad practice and doesn't protect the consumers best interest at all.

Posted by Matt Stigliano (Kimberly Howell Properties (210) 646-HOME) almost 12 years ago

Tom, Weak is a good word to use as I've never had that issue with my client buyers, but I'm very strong and make sure I speak with the lender as well to let them know they've already been approved elsewhere.

Greg, I understand builder appraisals as they do differ from pre-owned and really should only be compared to the houses in the immediate neighbor, but the appraisal should also note "build from ground up" verse "spec home" as a buyer typically pays "retail" to build from the ground up, but could get a really good discount on a spec home that's been sitting there for months.

Matt, The builder's look is about volume. If they can make such and such on the sale and lose such and such on the mortgage to pay closing costs, they're still ahead by such and such because of the price tag on the house in the first place.  That's why the new legislation really only hurts builders who "own" their own mortgage company rather than the ones who just affiliate with one.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - almost 12 years ago

Donna, I worked for some big home builders, and "blanketing" the buyers under their internal lender offered the advantage of weekly progress reports on each loan to each department- corporate, sales and construction- delivered and discussed.Outside lenders often didn't provide updates, so locks would be an unknown to the builder- not good if it expired prior to completion.

When buyers used outside lenders, it required the on site person's time to follow up, as opposed to having the info provided internally so that everyone was on the same page. You're right, too, about rates/fees being comparable. In the large majority of cases, in order to keep a deal in house, the builder's lender would match. Think: tracking as many as 100 loans at a time- per subdivision.

Another incentive was that the internal lenders performance correlated directly with the builder experience (surveys, etc.) so there was some pressure on the lenders to keep the buyers happy, as the surveys hit the highest level of management first. If a buyer came in complaining about issues with the lender, it was immediately conveyed, with the expectation that it would be worked out. The issues often included rates/points/costs at a competing lender.

I'm not suggesting that it's a perfect system (evidently not, if it's being challenged) but it's too bad for the companies that utilized internal lenders for the purpose of efficiency, and were ethical about it. 

Posted by Laurie Mindnich almost 12 years ago

Laurie, Yes, I understand that "some" builders were using a great system to keep up with alll their loans, but in actuality, each time I had buyers using an outside lender, the sales reps would thank me and them over and over about the great follow up throughout the process, almost like their lenders were never doing anything.  It's probably 6 of one, but I'm sure it's also very different in every market.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - almost 12 years ago

Donna: Thanks for the post. I always figured that builder incentives were a case of "too good to be true". Of course these days we're seeing a ton of them as they try and stay alive and unload their product. I've decided if I'm contacted by a buyer I will try and help them. But the minute they start shopping rate or talking about what I can do for them as far as incentives, I'm out. We all need to define our businesses and then stick to those principles like glue. Have a great upcoming week!

Posted by Paul McFadden, Pest Control, Seattle, WA. (Responsive Pest Control) almost 12 years ago

Paul, I completely understand.  I like to get my buyers pre-approved before we start looking, and if they've mentioned "new" homes, I always warn the mortgage guy that he/she might not get this one, but to remind themselves about the referrals they might get from that buyer for being with them at the beginning.  THe mortgage people in my area know there's a very slim chance they'll get the business when the buyer is buying new.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - almost 12 years ago