Should you borrow from your builder?

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."

-- Updated: April 17, 2002

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