BUILDER SAYS BUYER MUST GET APPROVED BY THEIR LENDER
EVERY TIME I SEE THIS IN A CONTRACT I SEETHE. Often when I see this it is because the builder OWNS or is OWNED by the same principals as the lender. When I'm working with a repeat borrower and a Realtor I've known for many years and the borrower has known the Realtor for years as well, I hate that a builder can have a pre printed contract "buyer must get approved by builder's lender" and it goes uncontested.
Why should a buyer have to be forced into using a lender and loan officer he knows nothing of? It rarely works out well for the buyer.
I have repeat buyers because I stay in touch with them over the years. I have a referral base because of the work I put into it. When the buyer goes to the builder's lender, the possibility that loan officer will be there in five years is not high, let alone stay in touch. The lender has a steady stream of business from the builder so they do not need to embrace any further referrral business.
I believe most of the time the buyer is not being fully informed and is being led around by the fear the builder will not sell them the home they want unless they conform to all the builder's terms.
What really bugs me is that Realtors actually let their buyers sign such a contract. Do they actually believe the builder will turn down the contract if financing is obtained on the open market? I doubt in today's environment even builders are going to look a gift horse in the mouth.
It is my experience that rarely is the interest rate better. As a matter of fact what I have seen often is a buyer getting a worse rate or adjustable rate without his knowledge. When a buyer has a trusted source for financing, why would he go anywhere else?
Why is he forced to get his credit pulled and possibly drop his score or present all documents to a builder for an approval when he does not choose to use them? After all the word "approval" means a property is identified and all documents are presented including an appraisal. Now, I believe the builders are not really going this far; but that means they are misusing the term "approval".
So, why would a buyer sign such a contract?
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Perhaps because they think the deal is better.
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Because the builder promises to pay closing costs if only they use their lender.
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Because the builder promises upgrades in the construction if they use their lender.
I am amazed that it is even legal for a builder to coerce buyers to use their lender because the liklihood the buyer is not getting anything free is quite high. Furthermore, it is very customary to have a seller pay closing costs for a buyer on a resale, so why would it not be so for a builder's home? It could be what makes the deal work. Resale sellers do not often say "you may buy my home, but only if you go to my chosen lender".
One excuse for having the buyer get approved by a builder's lender is they would suffer less fall out if they worked with a lender with whom the builder is well acquainted. A pretty flimsy excuse really.
Overall it is one big money grab. Builders want to get paid on the home. They would love to save the real estate fee if only the buyer would walk in without a Realtor and they love to make money on the financing. A Trifecta!
Somehow in the Northern Kentucky market, I see Realtors time after time allowing their buyers to sign contract conditions on newly built homes that are not in their best interest. Bottom line - the builder's have a loop hole and they use it time and again.
I believe "BUILDER SAYS BUYER MUST GET APPROVED BY THEIR LENDER" is a negotiable item on a home purchase contract.
