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I have been lurking here for a while, and I have also done a search but didn't find exactly what I was looking for. Here is the situation: We are pre-approved (quite easily) for a conventional loan given current interest rates. The house won't be completed until Nov 1 more or less. So we can't really lock in on a rate. But we are getting a little bit of pressure to find a rate and lock in or something like that. I guess the builder wants to know we are serious (??), even though he's got some earnest money and we did go about the process of getting pre-approved, etc. Anyway, I'd just like to know what is typically done around new construction.

Any input welcome! Thanks in advance.

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Sorry...also, we have our own buyer's agent involved in this, but I suspect she's not getting paid a full share of the real estate commission. I just get the impression... Is this a possibility, also?

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Hmm, is there some sort of protocol for engaging in this discussion board?

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Hi PebblesK,

Hmm, is there some sort of protocol for engaging in this discussion board?

LOL....

Nah, just jump right in! Don't mind the insanity... newbies are taken care of with kindness and patience (ALMOST always!)

There are very few trolls who survive these boards, and if you sense flame wars between the resident professionals and veterans they all make nice when it's time to truly help a fellow Fool.

Cheers,
Dave Donhoff
Foolish Mortgage Broker

(You'll notice the cats & dogs keep showing up to play with each other anyway...)
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There are very few trolls who survive these boards

Remember Veronica--what's his name? He was truly evil, but we ran him off. That's the only really awful person I remember from this board.

elizabeth
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Hi.
I am also interested in knowing this answer since I am also in the same position as you are. Buying a new construction. Closing date is end of October & cannot lock into a rate.

Just about to get out of attorney review. I have been told that there is very little a buyer can leverage our from the builder in a new construction deal. I got a taste of that in the contract. The builder made out his contract, my lawyer put a few riders onto it & then the builder took out most of them. Moreover, my builder does not entertain any real estate agents.

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.

Given my current scenario, I have a couple of questions.
1) By when do I have to come up with the downpayment. Assuming my closing date is end of October, do I have to come up with the downpayment at the time of closing OR when I lock in the rate ?
2) I have a credit card loan (0% APR) which expires in 2 months. I have received another one for 0% till end of June 2003 & I wanted to apply for this new card & transfer my balance from the old one to the new one so that I can carry the balance for another year at 0%. Would it impact my mortgage approval if I applied for a credit card right now ???

Any suggestions/help is much appreciated in this matter.

thanks.
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From what I can see, it's OK to do business with the builder's lender, but do it with your eyes open:

http://www.mtgprofessor.com/A%20-%20Building%20a%20House/should_i_borrow_from_the_builder's_lender.htm
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This was a nice article, thanx !

Have one more question regarding this ...

Since the builder wants me to apply with their financial company anyway, it is going to cost me the application fee - about $350/-. Now, it appears to me that if I do not go along with the builder's company & choose to go with someone else, I end up paying 2 mortgage application fee.

Isn't it illegal or discriminatory on the part of the builder to have the buyer go through their mortgage company ? I mean, they should have the provision of reimbursing that $350/- if the buyer chooses to go with some other mortgage company since the buyer wouldn't have applied with the builder's mortgage company ! So, it sounds fair enough for the buyer to get reimbursed that amount.

Pls. do comment on this.

thanks.
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Isn't it illegal or discriminatory on the part of the builder to have the buyer go through their mortgage company?

No, it's not illegal for the seller to strive to maintain control of the process so that he's not bit in the butt by some podunk lender somewhere who says that the borrower is lendable when he's not. The builder chooses a lender whose skill he can trust--not to mention getting in the pocket of said lender.

If you don't want to pay an application fee to the builder's lender because you borrow elsewhere, you can always try to "negotiate" that part out of the contract but, as you've seen, builders--these days anyway--are in the driver's seat. That's called capitalism.

Catherine Coy
Mortgage Broker
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Our situation is much more small town, I guess. Our builder is a local guy who doesn't do a zillion homes a year. We are pre-approved with a big bank, not some podunk lender, and we are very confident we'll get the financing. But I'm just trying to figure out what my options are. I don't think they need us to lock in the rate right now anyway.

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Still looking for an answer to the 2nd Question in my post.

The impact of applying for a new credit card offer, just before mortgage application...

Thanks for the other responses.
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himjhamb74

"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.

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

Unfortunately, unlike mortgage brokers, the builder-lender isn't required to tell you.

Catherine Coy
Mortgage Broker
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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.

- I am well past this stage. I had got a pre-approval letter from a company before I started looking for a home. But, the builder specifically states in his contract that they need the buyer to get a mortgage application done through their lender. I checked with my attorney today & she told me that it is a legal clause in the contract. I am not bound to close with their lender.. but I have to apply once through them as well. The only hitch I have with this is that I would be wasting my loan application fee with their lender, which , I believe they should reimburse me if I don't go with their lender. I even tried to strike out the clause from the builder's contract about applying with their lender, but they didn't let me. That brings us to the next point that you have made.

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.

- This is exactly what I am gonna do now. Am getting a better rate with a Federal Saving's bank than I would get with the builder's lender. So, I am gonna apply for this before I apply with the builder's lender, then, I am gonna get the Credit card & then, finally, am gonna apply with the builder's lender. I am still a bit weary of applying for the credit card as I don't know how much it affects the loan application.
If its just a meagre credit check, then I don't think its much of a concern but if it denotes something major, then I would prefer waiting on it. Pls. advise.

Thanks for all the timely comments from everyone.
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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.

I don't quite understand what this "credit card" strategy is all about, and how it would be a good thing. You're assuming that by applying for a credit card, your credit score will be lowered (why would you strive for that?) and that a lowered score would somehow serve you. Please explain this a little more, because it sounds convoluted to me and you may end up shooting yourself in the foot.

Catherine Coy
Mortgage Broker
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himjhamb74

I am well past this stage. I had got a pre-approval letter from a company before I started looking for a home.

Is the company you got pre-approved with the same Federal Savings bank you are referring to, or is this a third lending source?

I am still a bit leary of applying for the credit card as I don't know how much it affects the loan application.
If its just a meagre credit check, then I don't think its much of a concern but if it denotes something major, then I would prefer waiting on it. Pls. advise.


Without knowing your scores, it is difficult for me to answer with any specific recommendation for your file.

Generally, even though inquiries tend to cause a slight reduction in credit scores, the impact of the lower scores becomes critical only when they move the borrower from one broad credit level to another. Those levels are: 740, 700, 640, 620, 580.

In my area the 740 level is only important to banks for their very best rate. Also in my area banks won't lend at all if the score is below 640. In between, they have different rates for different credit score levels (this is called risk-based pricing).

So....from what I know of your case....it does seem as though you might have a lot of inquiries (pre-approval, bank, credit card, builder) within a short period of time your credit would have to be very good it seems for this not to have a measurable impact. Do you know what your scores are?

But, the builder specifically states in his contract that they need the buyer to get a mortgage application done through their lender.........I even tried to strike out the clause from the builder's contract about applying with their lender, but they didn't let me.

Why are you using this builder? If they are this inflexible about the financing, what are they going to be like during construction? When I hire a contractor, I want to know that they believe flexibility is a two-way street. Unless there is just an overwhelming reason for using this particular builder, I would find another, it just doesn't "smell" right to me.

If, during the course of the construction, there are disagreements between you and the builder about how you thought something was going to be and how the builder is going to make it, you will lose the argument every time with this builder. It doesn't take very many of these lost arguments to have you start looking for how to get out of the contract. When you can't get out, it doesn't take long for that feeling to turn into dislike for the house.

I understand that you have incurred some expense in this process so far, but how would that money stack up against finally moving into a house that you don't like?

I'm guessing that other people have faced similar issues with this builder during construction and that they, too, tried to get out of the contract when he disregarded their concerns. This would be a reason why he would insist on using a lender that backs him up rather than a disinterested third party lender like the bank.

Maybe I'm all wet here and just being paranoid. But the issue struck me forcefully enough that I wanted to give my opinion. Please remeber that it just that, an opinion over the internet.

PosFCF

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Catherine

I don't quite understand what this "credit card" strategy is all about, and how it would be a good thing.

The poster is going to build a home and get the financing for that. The poster also has a credit card offer in hand for 0% interest for almost a whole year. The poster would like to take advantage of the lower interest rate on their credit card obligations, but doesn't want to do so if it seriously hampers their building loan application. Two seperate issues going on.

PosFCF
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The poster is going to build a home and get the financing for that. The poster also has a credit card offer in hand for 0% interest for almost a whole year. The poster would like to take advantage of the lower interest rate on their credit card obligations, but doesn't want to do so if it seriously hampers their building loan application. Two separate issues going on.

Oh. Since you received a credit card offer for 0% interest for nearly a whole year, you must have excellent credit scores. So applying for the credit card will probably--but not certainly--not make a dent in your scores.

Other than that, I agree with PosFCF regarding the builder and his business practices. If you have a loan pre-APPROVAL--not just pre-qualification--letter from another local lender, what's the builder's problem except that he's missing out on the revenue from the loan and he doesn't like that.

Catherine Coy
Mortgage Broker
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The only hitch I have with this is that I would be wasting my loan application fee with their lender, which , I believe they should reimburse me if I don't go with their lender.

I wouldn't go with what you "believe".
I'd read the contract(s).
You probably won't get your app. fee back. At least if it's an application fee, not a deposit.
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Yep. Thats true. I did speak with their Sales Director & of course, they would not refund any such cost. They say that it is a cost that their lender incurs and has to be paid by the buyer. They also gave the lame reason that "Whoever comes to our lender, does not want to go anywhere else". Of course, I regard that as just a marketing pitch and nothing else. So, from where I stand right now, it appears as I will end up losing those $350/- application fee & will have to live with an extra credit check against me.

The reason is what was stated by Catherine before, capitalism. It is the seller's market right now. The reason why I am not walking away from this place (inspite of the builder being so hard) is firstly, we have been looking for more than 5 months now (very aggressively) and till now did not find anything as reasonable as this. Secondly, this was the last house in the current phase of the community & the new phase has already been 75% sold out. The same model (that I hv bought)in the new phase is already going for 7% more than what I would pay.

I hv looked outside, all builders selling new constructions have very strict contracts & they don't budge from that by much. Thats what my lawyer also told me. So, yeah... I do know the builder is not being flexible. Thats because, he knows he is in the driver's seat with the current state of the market.

About the 0% credit card offer I had mentioned. Yes, it is not directly linked to this thread. But, indirectly it is. I'll explain how.

I have a certain amount on a 0% credit card which expires in Aug'02. I recently got another offer for a 0% which expires in July '03. I would not like to be in a situation when come August, the current 0% card becomes 15% & I have to start paying interest on that. I also do not want that I pay of the amount on the credit card ( I have that much savings ) since this amount I have reserved for the down payment on the house. ( So that I can make 20% down to save PMI). Keeping this in mind, the other option is I make use of this new 0% offer that expires in July '03. That would give me 1 year of interest free time in which I can clear off the balance on the credit card. How all this relates to the house purchase - Would it impact my home mortgage application's approval if I apply for a new credit card ?????

Because if it will, then I will wait till my home mortgage application goes through... thats all.

I hope you understand my situation now.

thanks for all your responses.
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They say that it is a cost [$350 application fee] that their lender incurs and has to be paid by the buyer.

The builder's lender does not incur this cost. The "builder's lender" likely is a loan officer (who's damn grateful to have leads spoon-fed to him by the builder and shows his gratefulness with a referral fee paid to the builder, but which you pay, of course, through the price of the loan) who gives his personal blessing to your loan application. At this point, it's highly unlikely that lender processing labor has actually been spent on your loan application. The $350 is designed solely to bind you to the builder's lender's loan officer.

Oh that I could charge an "application fee" but, alas, the marketplace doesn't generally support it unless, of course, you're a builder in the driver's seat (at least for now) and are counting on the additional revenue generated by muscling buyers into using the "builder's lender."

Catherine Coy
Mortgage Broker
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You know Catherine, this is exactly why I have an aversion towards the idea of going with the builder's lender. No one likes getting pushed around & forced. I have already shopped around a bit for mortgage & have found a Savings bank who say that they will beat whatever the builder's lender would propose. If they do keep up to their word, I would definitely not go with the builder's lender.

Moreover, if what you say is true, that means that they are lying to their buyers about where the mortgage application money goes & that is not good for their business.

Anyway, I think I got all my answers.... if you could just answer my question on the credit card stuff, that would wrap it up and make me very grateful for your promptness to my barrage of questions.

thanks.
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if you could just answer my question on the credit card stuff,

Since your credit scores are so high, any hard inquiries made to obtain such great (how can you get better than zero percent?!) credit cards would not affect your scores adversely, in my opinion. If you actually put a balance on those cards, then of course that debt will be counted in your debt-to-income ratio for home loan qualifying purposes. You may be asked to provide an explanation for the inquiries in your credit report. You simply say, "Because my credit is so far above average, I receive boatloads of credit card offers, some of them offering zero percent interest rates. Of course, being the savvy consumer that I am, I choose to have one or two of those optimum cards in my possession at all times." :-)

Catherine Coy
Mortgage Broker
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I may not have answered your credit card question completely. I went back and read your previous post and I see what you're doing. What you're doing is playing the "credit card shuffle" and exploiting the various offers extended to you. Nothing wrong with that; anyone is entitled to maneuver in the marketplace to get the lowest interest rates obtainable on balances. The only possible danger is that the balance transfer from one 0% interest card to another 0% interest credit card may not occur efficiently. Remember, the credit card issuers are notorious for their poor reporting habits, as are the CRAs for their poor posting habits. No one is monitoring the news makers or the news givers. When the lender runs your credit, the balance may not have "cleared" one credit card issuer's books before it appears on another credit card issuer's books. That's why I always advise consumers to call each credit card issuer and determine when they relay (or "update") their information to the CRAs. By knowing this, you may be able to effect balance transfer efficiently so that both balances aren't showing up on your credit profile at the same time. Otherwise, you have to prove to the lender that the balance has been duplicated and you owe only 1x$, not 2x$.

Catherine Coy
Mortgage Broker
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That's very good advice, Catherine. Thank you loads.

I did check my credit score & it, unfortunately it has fallen about 8 points. Not to give out too much information on the net, I would just say that my score is in the lower 700s. Even my wife's score has dropped by about 12 points in the past 3 months. Her score is in the upper 600s, though.
Now, the credit card offer is in her name... so it will not impact my credit rating at all if she applies for the same. Moreover, I am the primary mortgage borrower & she is secondary on the application. So, Going by your posts, I don't think its a bid deal applying for this new card.

Well... Thank you very much all, who have replied to my questions. Thanks to you, I am a more informed person, now.

- Himanshu
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I did check my credit score and it, unfortunately, has fallen about 8 points.

One more caveat. You say, "it." This suggests that you have only one CRA (Consumer Reporting Agency = Transunion, Experian and Equifax) score. Lenders use the lower of two or the middle of three CRA scores for loan pricing purposes, so you don't really have a comprehensive view of your credit score--that is, the one that will actually be used to price your loan. This is why I suggest that you have an experienced mortgage broker run all three bureaus and guide you in what, if anything, you can do to raise the scores--all three of them--to optimize the middle score. The mortgage-broker's CRA pull will count as a "hard" inquiry, but you need to know what's driving the scores. Interest rate breaks usually occur at:

620-640
641-680
701-720
740+

Catherine Coy
Mortgage Broker
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The mortgage broker had done this with me & he told me that it was from 2 out of the 3 CRAs. He said that once my mortgage application is processed, he would be able to come up with the combined CRA from all the three.
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He was too cheap to run all three from the git-go. Ask him to spend another five bucks for cryin' out loud and give you all three. Why would he wait until application to obtain all three? That's dumb. If there's something derogatory contained on the CRA's profile that you're not seeing, you should be dealing with it now. I've seen it happen that way, particularly with public records, which report typically to TransUnion.

Cheap brokers. Sheesh.

Catherine Coy
Mortgage Broker
(runs all three every time)
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