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Personal Finances / Buying or Selling a Home


Subject:  Re: Help on new construction? Date:  6/14/2002  9:05 PM
Author:  PosFCF Number:  43538 of 129163


"In order to avoid any defaulters, my builder also insists the buyer's get a mortgage applied through their financial company .... of course, the buyer is free to close with whomsoever he/she wishes but one application has to be done with the builder's financial company."

I'm not sure I follow the builder's stated reason for forcing you to apply through his mortgage company. If you are approved through a lender for a construction loan, then that lender has already done enough underwriting to know you are not likely to default. Otherwise, they wouldn't issue the first draw. If, by some chance, you are financially unable to qualify to modify into the permanent financing when the home is completed, you wouldn't have been able to qualify with the builder's lender either.

I am uncomfortable with a builder's lender because of several reasons: 1). The builder may be constantly informed of your personal financial information; 2). In any disputes about draws, I believe you have more leverage with a lender who has no ties with the builder; 3). There is no guarantee that the builder's lender is any more qualified than your bank.

Strong-arm tactics raise my warning flags.

Additionally, if you are concerned about your credit scores being impacted by another inquiry due to a credit card application, then you should also be concerned with two loan applications in process at the same time.

If I were faced with this situation, and I still wanted to proceed with this builder, then I think I would get a pre-approval letter from my bank and include it with the contract, and I would strike out the builder's lenders clauses when I made my offer to the builder.

If that failed, I think I would apply for the loan through the bank, apply for the credit card, then apply for the loan through the builder's lender. This way, the lowest score would be with his lender.

As far as locking the rates there is a special rate lock available for construction loans that allows you to lock for 180 days. It is better to lock your rate after you have loan approval so that you are not burning up lock time while waiting for all the processing to get done. Bank rate locks are usually a better deal in my area than a mortgage company's.

I think I would also ask the builder how much he makes from his lender for getting the business.

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