if you've built a house...re: mortgage

[megs4413]

We've decided to build a new home after months and months of looking. We're very happy with the floor plan and the community we've chosen (it's a very established master planned community and a great builder.) However, we're unsure about whether we should use the standard lender for this builder or if we should shop around for a mortgage to see if we can get a better rate. I think my first concern is that we don't know the name of the lender (the paperwork just refers to it as "Builder's Loan Source"), so we can't really research the company. My next concern is that we have no idea what the rates are and they won't tell us until AFTER we submit an application, which means they will do an inquiry on our credit history without us even being sure we want to use them as a lender! Finally, when I asked the salesperson about the possibility of using another lender, she said that it was permissible, but that we would end up having to cover some of the closing costs that they take care of if you use their lender (totaling in the neighborhood of $3,000.)

Thoughts? Has anyone been through this and have some insight? Just looking at the paperwork alone and going with my gut, I feel like we should shop around for a great rate from a reputable lender and just eat the $3K if we have to, but maybe I'm just being paranoid?

[marymoo86]

IDK - but that is completely weird that you don't have at least an idea of who and/or what the rates may be. Strange - that sets alarm bells off for me.

[BabyMine]

We did this, with our current home, in 2002. They can't give you a rate because by the time the house is finished the rat could have changed. Sometimes they will let you lock in a rate 30-45 days before completion. We used their lender because the rates were comparable and we received the money towards closing.

[lhafer]

We went with the builder's lender when we built our first home - don't do it. They royally screwed us over. We went with our own lender the second time.

[nfowife]

I'm not sure I understand. All we had to do was pay for the lot (and only then, because we were not buying it from the builder, that was a separate transaction) and then give them a down payment of 10% of the estimated cost. We did not need to have a mortgage in place at that time. We got a preliminary quote but could not lock in our rate until close to the closing date. The builder financed the building with a construction loan of his own on his end as until we closed he owned the home.

[secchick]

We were in jumbo territory in 2008-9 with our new house. The lady at their lender really had no clue and said that some of the options I asked about never existed or were impossible (we did a construction loan and permanent financing because we were not in a community, but building on our lot in the city). We ended up using our own lender. Our builder's person ( a well regarded builder) was completely incompotent. She could do only the things they did routinely. Anything else and you were on your own. She was pushing us to a jumbo and we really wanted a conforming loan and a second, which is what we did with our broker.

[MSWR0319]

We used our own lender but we weren't in a community. It was initially a construction loan and when it was finished, got converted to a regular mortgage. I don't think our closing costs were very much at all, but that's probably more because of where we live.

[cmo]

We were in the same boat as you about 9 years ago. DH ran the numbers, and even with the builder's lender's lower closing costs factored in, it was a better deal to go with a different lender. If they won't even give you current lending rates or the option to lock in a rate, it may be worth looking elsewhere, esp. if you are within 90 days of closing. (And if you do lock in a rate, give yourself some wiggle room with the closing date, in case the builder is not finished on time. Guess how I know this?!)

[karstmama]

i can't answer you though i agree with the 'alarm bells' part, but wanted to point out something else that bit us when my ex & i built.

the 'empty lot' tax rate was one thing, and the 'house and lot' rate was much less. because the lot itself was worth less, though, the taxes on just a lot were a bunch less money. so maybe the lot rate was 10% and the house rate was 5% just for some numbers.

well, the first year our taxes came due, we were charged the lot rate but on the worth of the house *and* the lot. a bit of hassle, a bit of proving we had a house there now, and that part was fixed with the county. *but* - the worst part was yet to come. the escrow company started charging us an insane amount of extra for the escrow, enough to cover this year's *and* next year's taxes, based on the lot rate. so the fix with the county was a bit of annoyance but easily done. *NOT SO* the fix with the escrow company. geez, they were either stupid or greedy or both. the thing is, that if we could have afforded the big bump up, we would have gotten it all back after the next year's taxes were paid, but it was a big bite and we couldn't afford it and had to fight it and it was a huge deal.

so just be on the lookout for your tax rate! make sure the county charges the correct amount because the escrow company could be a real pia about it.