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Should you borrow from your builder?
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But affiliated lenders say people benefit from financing
through them because such lenders have an added incentive to qualify
and close loans as quickly as possible. After all, home sales and
real estate commissions depend on it.
"Century 21 Mortgage is working a lot harder
for Century 21 than maybe other lenders might work," Andwood
says. "That's not to say that a loan decision isn't a loan
decision, but I think that brand equity certainly adds value and
the customer appreciates knowing that everyone is pulling on the
same set of oars to make the closing date and the closing process
as easily as possible."
You'd better shop around
But consumers have to be careful. Builders can have tricks up their
sleeves just like any other lender.
In an April 2001 National Mortgage News story,
a Department of Housing and Urban Development enforcement official
was quoted as saying the agency was looking into whether some builders
were illegally penalizing home buyers who didn't use their affiliated
mortgage companies. While builders can offer incentives to buyers
to get them to use their lender affiliates, they can't penalize
them for not doing so.
For example, a customary, legal arrangement is for
builders to offer customers a few thousand dollars they can apply
toward closing costs and points charged by their affiliated lenders.
But in some cases, builder-affiliated lenders just
charge more points or higher rates than outside competitors. The
practice consumes much of a borrower's "discount" and
builders who do it are violating the Real Estate Settlement Procedures
Act, according to a HUD spokesman.
Savage says he has seen this happen from time to time.
A builder might offer, say, $5,000 in credits on a $200,000 mortgage.
But the builder's mortgage company might charge two points,
or $4,000, to get a rate of 7.25 percent on a 30-year loan when
outside companies are charging zero points for the same mortgage.
"This is not across the board," says the
president of Alexandria, Va.-based PMC Mortgage Corp. "But
in more instances than one, the closing-cost credit is offset by
higher points and higher rates. They're not getting the great deal
they think they are."
Still, Ryland's Krebs says her company offers customers
competitive rates as well as other benefits -- beyond the simple
convenience of being able to apply for loans through the company's
sales offices.
For one thing, the mortgage company processes loans
a bit more quickly because it doesn't have to exchange data back
and forth with outside third parties. For another, it provides borrowers
with more frequent updates about the status of their loans between
application and closing.
"It's one-stop shopping for the home buyer,"
she says. "It makes everything a little easier for them."
And as long as convenience doesn't come with too dear
a price tag, experts say there's nothing wrong with choosing the
in-house financing company.
"The reality is Century 21 Mortgage is one of
several options that an agent might refer a customer to. They have
other local lenders they might use too and there's no exclusivity
there," says Cendant's Andwood. "We compete along with
everyone else."
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