careful with home builder's financing
We are purchasing a new Richmond home in a few months and my husband
and I are trying to compare the HomeAmerican mortgage rates plus
$8,000 incentive, which is higher, to other lenders. I was wondering
if I could get some advice on comparing lenders and what to look
for. Which fees are junk? Also, the house would be completed in
about 90 days, and we are also looking to lock a rate in. Do all
banks charge a fee for this? Thank you.
-- Kim Combo
From the Richmond American Web site I learned that HomeAmerican
Mortgage Corp. and Richmond American Homes are wholly owned subsidiaries
of M.D.C. Holdings Inc., a New York Stock Exchange company. That's
not necessarily good or bad but does explain why the builder would
provide an incentive to steer financing toward this lender.
In reviewing the company's most recent 10-Q report,
I learned that it also sells third-party homeowners insurance and
owns an escrow and title company. In some markets, maybe yours,
M.D.C. Holdings Inc. provides one-stop shopping for your convenience.
A Chicago Tribune story, "Incentives
to use builder's lender come under fire," explains some
of the potential problems when builders provide incentives to use
a lender, as does the Bankrate feature, "Should
you borrow from your builder?" Bottom line, you want to
shop around for financing and not just accept the rate provided
by the lender affiliated with the builder. You can shop
rates on Bankrate.
The lender has to provide you with a good-faith estimate
of the expected closing costs, but your actual closing costs can
vary quite a bit from that estimate. Bankrate periodically does
of closing costs, and the article
that accompanies that survey explains what's normal and customary
and what could be considered "junk fees." The Department
of Housing and Urban Development's electronic pamphlet, "Buying
Your Home: Settlement Costs and Information," also does
a nice job in explaining these costs.
It's common for a lender to provide a 30-day rate
lock for free and to charge for a longer rate lock. Use Bankrate
rates in your market, and it will tell you the length of the
initial rate lock. Locking in an interest rate on a new build can
be a bit tricky because the timing of when the house closes is outside
your control. In an upward trending interest rate environment, you
don't want your lock to expire before you close on the house. This
Bankrate feature, "Rate-lock
anxiety rises with mortgage rates," explains rate locks
in greater depth.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."