Has anyone used a lender that was suggested by the home builder? The company that is building my house in League City is referring a small mortgage company out of Friendswood, but my wife and I have previously used Countrywide and had no problems. So every time we talk to a rep from the builder, they are constantly trying to push "their" mortgage company. Do these mortgage companies pay some sort of kickback to the builder? If so, is there anyway to bargain with the builder if we decided to use their mortgage company? It almost sickens me that the builder is making a fair amount of cash off of the sale of the house and property, but then might be making another few percent from a kickback from the mortgage company. I want my piece of the pie (and be able to eat it too!) Thanks for any info!
boomboom, Who is your builder and what is the name of their mortgage company? My wife is both a realtor and a mortgage broker so I might be able to give you some advice. Yes, a good majority of builders work with their own lenders. They will usually offer you some type of "deal", like paying your loan origination fee or some of your closing costs. In fact, when I had my home built, I used my builder's lender and they paid my loan origination fee (which is usually 1% of the price of the home). So there are incentives to use a builder's mortgage lender. The most important thing is, let your realtor review all of your loan paperwork to make sure they are not charging you junk fees or un-necessary points. You can still bargain with your builder. They are always willing to negotiate even after the house is under construction. Most builders will give you an upgrade allowance. Also, you can certainly try to ask for a lil cut off the price of the home. Some will do it, some wont. Also, make sure the appraisal the mortgage company is using doesnt inflate their appraisal to make the deal work. In other words, sometimes a builder will over-price a house and if you are using their mortgage company, their appraiser will sometimes over appraise the value of the home in order to make sure it is more than your loan amount. This happens often so be careful. As far as kickbacks, thats a gray area. In reality, there probably is none if your builder is willing to pay your loan origination. Just make sure you are getting the market rate and are not being charge alot of junk fees. Their mortgage company should offer you a good faith estimate, which you can review with your realtor. Hope that helps.
Absolutely. Plus, they have an established relationship, so things can run more smoothly on the builder's end. For instance, new construction sales are not looked upon favorably as comps by the underwriters. They would prefer the appraiser provide comps from "regular" sales. In a new master planned community, this can be difficult, so the builder will have a lender he works with, and the lender will have an appraiser he works with. Everyone is happy, and the deal goes through nice and smooth. Of course, you'll probably be able to find a better lending deal out there on your own. We bought our house from a builder's inventory, and he accepted our offer on two conditions: 1) we close by the end of the month, and 2) we use their lender. As it was, we got the house at our price....using our own lender....and closing a month and a half later.
I second the previous points, but the key thing is to get a couple of other good faith estimates (hopefully from friends/colleagues who were happy using them) along with the builders rec. lender's good faith estimate. One other general point, with interest rates this low, if you qualify for a conventional mortgage (20% down), are fairly certain know you are going to stay in the house for 4 years or more, and if you itemize, this might be one of the few cases where paying points to get a lower rate is a very good long term investment.
And don't forget the 80-15-5 Your first loan is for 80%, and you have a second (with a slightly higher rate) that is for 15%. That way, you only have to put down 5%, but your primary carries no more than 80% of the loan value. It allows you to waive escrow (if you are so inclined), but more importantly, it means you don't have to pay PMI. The combination of your two note payments is less than a one only first with PMI. The real benefit though is your 2nd note is usually for only ten years, so if you stay in the house for ten years, your overall payment will drop drastically in the tenth. Furthermore, you're paying quite a bit more towards principle up front. All in all, it's a good deal......stay away from PMI.
My mortage company was partly owned by the builder, but by law in Ohio that can't be a majority owner. So it works out for everyone, they give me their best rate, I don'[t have to screw around comapring rates and everything worked out.
Did you buy a custom home from a small builder, or did you buy a tract home from a huge builder... If you bought from a small time builder, then no, they do not get kickbacks or make any money from the mortgage company. If you bought from a big-time builder, there's no telling...I wouldn't know. If its a small time builder, there's no telling how much money he's making on the whole deal, but its probably not as much as you might think it is. Most small time builders hope to make about 5% off the sale of a house after all costs, and that goes into the company that he/she owns. But that does not mean that the builder makes that amount themself. They ususally pay themselves a salary out of their company and that salary depends on how good their year was. That 5% profit goes into the company, but many times there is some warranty work, or a little fix it here and there, so by the time its all said and done, a builder would be happy with 4% margins. Are their exceptions to the rule...absolutely...sometimes a builder will make a little more if its a particularly hard house to build, but many times a builder will make less and sometimes just break even or lose money on a deal just to get rid of a house... There are lots of costs that go into a house...the builder has to pay interest and property tax on any house that sits there, so they lose that off their profits too...that's why you'll often get the best deal on a house if its sat there a while...the builder will dump it, take a loss, just to get the tax and interest payments off the books, get some cash and move on. Probably 70% of builders get into the business, see how hard it is to make money and get out after a year or two. Of the 30% that stay most eventually go broke or get out of the business. Probably about 2% of builders actually get rich building, and about 5-10% make decent money. Its a tough business...and MOST builders aren't making the deals that you think that their getting with their suppliers. I'll stop ranting now...but if its a big time tract home builder...I wouldn't know how they run business...how much they make and the such...but I do know that they can usually pull bigger margins because they get the land much cheaper and they buy huge tracts of land and get it for less than a smaller builder who has to buy it lot by lot. enough, I'll shut up now.
Thanks for all of the replies!!! I'll try to answer all of the questions (without original quotes)... The builder is Cervelle Homes. They are based in Friendswood and only build in the Houston area. I'm not sure if they'd be considered a large builder or not (they're definitely not as large as KB, Village, David Weekley, etc...). The neighborhood we will be moving into is called "The Meadows". It's on Highway 270 (Egret Bay extended south past FM 518) almost at the intersection with FM 518. Even though they will be bulding around 500 homes on the land they purchased, it's not exactly a "master-planned" type community. We decided on using this particular builder at this location partly because of logistics and partly because of cost (imagine that...isn't that why anyone purchases a home?? ). Cervelle offered lots that were a bit bigger than most master-planned communities and had an extensive collection of one stories to choose from (I'm post-30 and tired of walking up and down stairs). They also come with the garage detached, which was something my wife and I preferred (although, Cervelled offers an option where you can expand your garage and actually put an additional room above the car-area...some of you might have seen these houses in the South Houston/Pearland/League City area...the garages look like barns). We really wanted to try to get into a South Shore Harbour neighborhood, but the tax rate in that area was ridiculously high. As for the loan, we really wanted to try for a 90-10 so we could pass on PMI, but it looks like an 80-15-5 is our best bet. It's such a wonderful time to buy a car or home right now. I can't help but think that I'll look back on this in the future as a great decision. Ultimately (the reason for my initial post), we wanted to see if we could get some extras from the builder for using his lender. My wife and I decided to minimize the extras on the house, mainly to keep the cost down and allow us to upgrade cheaper at a later time. Most of the things that are going into our house are extremely cheap fixtures (lights, vinyl tile, lower grade carpet)...so I was guessing that the builder won't make maximum profit off of my house, but still should come clean with a good margin. I really wanted to know if I had any bargaining power to request some additional extras (ex. garage door opener, bricked-over mailbox, etc...). In conclusion (jeesh, using that starting statement makes me feel like I'm writing a term paper), I'm coming away from this entire experience learning something significant about myself. I grew up wanting to live the alternative, low-responsibility lifestyle. I didn't think I would ever want to have kids. I knew I would never live in a "cookie-cutter" neighborhood. But after getting married and having a child, your priorities and maturity level really change. I'm finally learning that I'm no longer numero uno. My main focus now is getting my daughter and step-son into a kid-friendly neighborhood where they might get to experience the same things I did when I was growing up (playing football in the street, building forts in the woods, etc...). So.......if any of the younger readers on the board happen to stumble in this discussion, hear me now (and you definitely believe me later!), your life is gonna change...and it will most likely change for the better!!! Thanks for the input...and if anyone else has a spin on this, I'd definitely be interested in hearing it!
Large Builder...any builder who plans on 500 homes and can by and develop the land...very large, even if they are just local. A small custom builder might build 5-10 houses a year.
