The pros and cons of using a builder’s preferred lender for new construction can have a significant impact on your costs, timeline, and financing options.
While some buyers welcome the convenience and perks, others find that shopping around pays off.
When buying a newly built home, many builders, typically the large, national builders, encourage homebuyers to use their preferred lender by offering financial incentives or streamlined services. While these partnerships offer benefits, homebuyers should carefully weigh the pros and cons.
Potential Benefits of Using Preferred Lenders
One of the most common perks is financial. Builders often offer credits toward closing costs or upgrades to the home if buyers choose the builder’s preferred lender. These incentives can save homebuyers thousands, sometimes tens of thousands of dollars.
Using the preferred lender may also speed up the financing process. Since the lender is familiar with the builder’s process, timeline, and paperwork, communication between the parties may run more smoothly, helping to avoid delays in construction or closing. [Related: What are Closing Costs When Buying a Home in Massachusetts?].
Preferred lenders may also have greater flexibility in approving loans tied to a particular builder’s homes. Preferred lenders often understand unique factors, such as construction delays and appraisal issues, which can make the loan approval process less stressful for homebuyers.
Possible Drawbacks of Using the Builder’s Lender
Relying on a builder’s lender is not always the best financial move. Home buyers might miss out on better interest rates or terms from other lenders. Even with incentives, a slightly higher rate could result in higher costs over the life of the loan.
Another concern is pressure. Builders may strongly encourage or even give the impression that buyers must use their lender to receive the best deal. Homebuyers shouldn’t allow these pressure tactics to limit a buyer’s ability to shop around and compare interest rates and terms. Some preferred lenders may also have stricter requirements or fewer loan options than outside lenders.
One such restriction is that a preferred lender may require a home buyer to use the lender’s preferred real estate closing attorney. [Related: Should a Massachusetts Homebuyer Use Their Lender’s Closing Attorney to Represent Them Too?]
Should Home Buyers Use the Builder’s Preferred Lender When Buying New Construction?
Experienced buyer agents recommend that homebuyers get written details about any incentives and compare them with outside loan offers. A builder cannot require a buyer to use a specific lender, so shopping around is key. A home buyer should do the math and see if the incentives offered offset the cost of a loan with less favorable terms.
Depending on the real estate market at the time and other circumstances, a home buyer can use an outside lender with better rates and terms, and also negotiate some incentives with the builder.
For some home buyers, the convenience and perks of a preferred lender will make sense. For others, independent lenders may offer more savings and flexibility.
