Let's face it. Your mortgage broker cousin Larry has known for months that you are looking at new homes. He has given you advice, told you where to look for homes, and been there for you when you've had questions about the process you're about to embark upon. And, he's family. You've assured him that you would most likely use him as your loan agent. But almost all of the builders you are considering buying from have "incentive" money linked to using their own preferred lenders! This can take a chunk out of the money you need to come up with at closing time, or get you the carpet upgrade you otherwise may not have been able to add. What do you do now? Sure seems like builders shouldn't make you use a particular lender.

First, let's look at the meaning of the word "incentive". The dictionary defines it as "a thing that urges a person on; a cause of action or effort; motive; stimulus." In this case, the builders are providing an "incentive" for their buyers not only to make a decision to buy a new home in their community, but may link it to using their own "in-house" or preferred lender as well. Builders, however, cannot prevent you from using any lender you choose, be it your credit union or lender-cousin. They understand that some loyalties run deep. They simply are not bound to offer any of their own dollars in the form of incentive monies if you do so. Therefore, the choice will remain yours.

Why do builders sometimes "sweeten the pot", so to speak, for buyers to use a particular lender? In my experience, builders need to try to have some "givens" and sense of accountability over the process, when they are taking a considerable amount of risk in building and upgrading a new home to a buyer's specifications. An in-house, or preferred lender, whose first priority is its builder accounts (not, as they say in the lending industry, "spot" business), must make it their business to get buyers pre-approved in a timely fashion, educating the builder on whether it is prudent for them to take a particular home or home site off the market.

The in-house lender is usually already in the possession of all the necessary public reports, homeowner's association paperwork (if applicable), master government appraisals, and understands the builder's purchase agreements and addendums, so that there isn't any last minute scrambling at closing time. The builder can hold its own lender accountable for providing the final dollars to its qualified buyers, and ultimately to itself, making it possible to lessen the "carry " time on a new home. I call this the "well-oiled" machine. Builder sales and construction personnel, lender, design center, and ultimately the buyer, all can be on the same page at the same time, with status meetings being held on a frequent basis, so that fewer details can fall through the cracks.

In-house lenders owned by the same entity that owns a particular builder may also be a profit center, such as its design center, offering at retail what they purchase at wholesale. As with other businesses, such as car dealerships, where they hope you use their service centers and financing opportunities, this is an illustration of the free enterprise system. You still have a choice to go outside, but may not want to dismiss the incentives being offered, especially if they are financially meaningful to your bottom line.

Should you decide to use your own lender and pass on the incentives being offered by the builder you ultimately buy from, you'll need to be especially attentive to the needs of your builder in order to provide them with the information they will need to build, change, or upgrade the new home. It will be your responsibility to make sure your loan agent calls or faxes the builder on a weekly basis, reporting on your loan status, or providing any necessary approvals for an increased loan amount should you decide to enhance your new home. When the time comes to close escrow, your lender should be able to let you know when they will have the proper loan documents in title for you to sign, based on your builder's reports as to when the home will be complete and ready to occupy.

Whether you ultimately choose the builder's preferred lender or cousin Larry, the key to a stress-lessened process is communication. When buyers, builders, and lenders communicate and provide documentation to one another with a "johnny on the spot" attitude, everyone wins, and finger-pointing will be eliminated at that crucial projected close of escrow, when emotions runs particularly high. It can be a thing of beauty when everyone works diligently up front to make that happen.

Published: December 4, 1998

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A veteran of the real estate and homebuilding industries since 1986, Dena Kouremetis first joined Realty Times as a new homes writer in 1998. Since then, she has authored four books, written consumer columns on new homes issues for websites and newspapers all across the country, contributed to builder trade magazines, appeared as a guest expert on several radio shows and even created a ten-chapter podcast for LendingTree.com’s homebuilder website, iNest.com, now available on iTunes, entitled Uncharted Waters; Navigating the Purchase of a New Production Home. Kouremetis recently joined her local Folsom, CA Coldwell Banker office as a broker associate while continuing to write for the real estate industry. For the past three years, she has been training real estate agents for both the resale and new homes industries, putting her experience, research expertise and gift of expression to work to help others entering the business.