Reading a builder's lender incentive without the sales pressure

Half the files we write in Rio Rancho are new construction, and nearly all of them come with the same conversation. The builder is offering a closing cost credit, sometimes a substantial one, conditional on financing through their affiliated lender. Buyers ask us whether it is a trick.

It is not a trick. It is a legitimate incentive that the builder funds because a financed sale through a lender they control is more predictable for them. Sometimes it is genuinely the best offer available and we say so. The only honest way to know is to put the two estimates side by side and compare totals over the period you will actually hold the loan.

Compare four numbers, not one

1. The credit, in dollars, and exactly what it may be applied to
2. The note rate on each estimate, quoted on the same day
3. The total of lender fees on page two of each Loan Estimate
4. The monthly payment difference multiplied by 48 months

That last one is where the answer usually lives. A $12,000 credit sounds decisive. If the accompanying rate is half a point higher on a $340,000 loan, the extra monthly cost over four years can eat most of it (sample figures). Equally, if the rates are within an eighth of each other, the credit wins and we will tell you to take it.

Ask for both estimates on the same morning

Rate sheets reprice daily and sometimes intraday. An estimate from Tuesday compared against one from Friday is not a comparison at all. We quote our panel on the same morning you receive the builder's figures, and if that means waiting a day, we wait.

You are allowed to use the builder's lender and still have somebody independent read the estimate. That costs you nothing.

Things that are not in the credit

A few items reliably fall outside a builder credit and belong in your planning anyway.

• Rate lock extensions when the build slips, which it often does
• Any second appraisal or re-inspection fee after a delay
• Prepaid interest, which depends on your closing date, not on the builder
• Upgrades chosen at the design center, which are usually not financeable above appraised value

Lock strategy is the real differentiator

New build closings slip. A 30-day lock on a house that will not be finished for four months is not a plan. Several lenders on our panel offer 90 and 120 day locks, and one currently offers a one-time float-down if the market improves before closing. Those structures can be worth more to you than the headline credit.

This is also where the broker structure helps most. If a lock is about to expire badly, we can move the file to a different panel lender rather than accept a punitive extension. That option does not exist when your lender and your builder are the same organization.

What we actually hand you

One page. Their estimate in the left column, ours in the right, the four numbers above at the bottom, and a four-year total. No commentary, no recommendation on the page itself. If their column is smaller, use them. We would rather be the person you call next time.

All figures in this article are sample figures for illustration only.