Who knows…it could be a trick or a treat! This is a question asked earlier this week from one of my past clients. She has a friend who is buying a home that is new construction. The builder has "encouraged" her friend to use their preferred lender by offering $5,000 towards closing costs. The builder’s lender is refusing to quote rates, which unless they’re locking for 120 days or more…the rates they quote are useless. Technically, if the LO has taken a loan application, they are required to provide a Good Faith Estimate within 3 days.
Lenders do offer 120 day locks. There may be a non-refundable upfront fee and the rate is the higher (the longer the term of the lock, the higher the rate or cost for that rate will be). If rates are lower in October than they are today for a 120 day lock, you’ve lost your upfront fee. Even if you decide not to close on that property, that fee is gone. Not to mention, 9 times out of 10, builders take longer than they anticipate to complete construction of the home. At this point, they’re just pouring the foundation. The LO knows the buyer cannot or will not lock that rate yet.
I should add that this home buyer is well qualifed so being preapproved is not an issue. I don’t advise getting preapproved from a Mortgage Professional and then ditching them over 0.125% in interest rate. It’s very possible that the builder may require you to get preapproved from their lender even if you’re seeking financing elsewhere, in this case, I wouldn’t feel too badly about shopping them. It’s not your fault you’re being forced to provide your financial information to a lender who’s shacked up with a builder.
My advice to my past client’s friend is to:
- Request a Good Faith Estimate based on a 30 day quote just to see for the heck of it what the LO would disclose for fees associated with the rate.
- Compare other lenders using the same scenario to get an idea of what the builder’s lender fees are compared to other lenders offering the same rate.
- When the construction is closer to 60 days out, obtain updated GFEs. At that point, you’re in a good position to lock in your rate.
- It doesn’t hurt to ask! The $5,000 credit may be legit or built into the rate. It was probably all ready factored into the sales price of the home, however it’s too late to negotiate that once the purchase and sale agreement has been signed and some builders will not budge. Should you want to work with your lender vs. the builder’s lender, there is no reason why your agent cannot submit an offer asking for the same credit.