Builder's Lender or Your Own? How to Compare Mortgage Offers on New Construction
Builder-affiliated lenders often come with incentives. How to compare their offer with an outside lender's on rate, points, fees, lock length and the incentive itself.
By the iNIAZ team · Published · 2 min read
Many national builders own or are affiliated with a mortgage company, and many incentives are offered only if you finance through it. That can be a good deal, or a costly one, depending on the full terms. The only way to know is to compare written offers.
You can choose your lender
Federal rules generally require a builder that refers you to an affiliated lender or title company to disclose the relationship, and they generally prohibit requiring you to use the affiliate as a condition of the sale. A builder can still offer an incentive for using its affiliate. The practical question is whether the incentive outweighs any difference in the loan's cost.
Get Loan Estimates from both
A Loan Estimate is a standard three-page form lenders must give you after you apply. Because every lender uses the same form, it is the easiest way to compare:
- the interest rate and whether it is locked;
- points, and lender fees in the origination charges;
- the estimated cash to close;
- the projected payments.
Apply with the affiliated lender and at least one outside lender around the same time, for the same loan type, down payment and lock length.
Compare the incentive in dollars
Turn the incentive into a number. If the builder offers a closing credit only with its lender, the comparison is: the affiliated lender's total cost minus the credit, versus the outside lender's total cost. Look at more than the first month: a lower rate is worth more the longer you keep the loan, while a credit is a one-time benefit. Our offer comparison tool shows the difference over the years you expect to own the home.
Lock length matters more for new homes
With a home not yet built, the rate lock has to last until settlement, which may be months away and may move. Compare lock lengths, extension costs and whether a lender offers a float-down if rates fall. A lower rate with a short lock can cost more after extensions.
Questions to ask each lender
- Is this rate locked, and until when? What does an extension cost?
- Which fees are lender fees, and which are third-party estimates?
- Are points included in this quote? What is the rate without them?
- Does the builder's incentive change if I pay points or choose a different loan program?
Related guides
Sources
General information, not legal, tax or financial advice. Confirm details that matter to your situation with a qualified professional.