New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

Dr. Don Taylor, CFA, Bankrate.com advice columnistBe careful with home builder's financing

Dear Dr. Don,
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

- advertisement -

Dear Kim,
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 a survey 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 to shop 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."

Bankrate.com's corrections policy -- Posted: June 2, 2006
More Q&A stories from Dr. DonAsk a question
 RESOURCES
Get our free mortgage newsletter
Don't pay builder until home's built right
Using the builder's mortgage company
 TOP MORTGAGE STORIES
No stories available


Compare Rates
NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.45%
48 month new car loan 3.77%
1 yr CD 0.89%
Rates may include points
RELATED CALCULATORS
  How much life insurance do I need?  
  Calculate your payment on any loan  
  What will it take to save for a goal?  
VIEW ALL  
BASICS SERIES
Begin with personal finance fundamentals:
Auto Loans
Checking
Credit Cards
Debt Consolidation
Insurance
Investing
Home Equity
Mortgages
Student Loans
Taxes
Retirement
FINANCIAL LITERACY
Rev up your portfolio
with these tips and tricks.
- advertisement -
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.