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All the mortgage experts out there please help me out.
I am considering buying a new home which the builder will start from scratch. It will be 4-5 months before I take possession.
The builder wants me to apply for the loan through their associated mortgage company. They will take the rate I am eligible for and add .25% to it and lock it for a 6 month period. So if I am eligible for 5 percent they will lock it at 5.25%. They say that if rate goes below that then I am eligible for the lower rate at time of closing. The builder may not be giving me the best rate available now. However locking the rate may be beneficial if the rate will rise during the 4 -5 months.
I cannot really shop with other banks/brokers right now since most preapprove and lock rates for 30-45 days.
Should I let the builder run my credit ? Can they bind me to use their brokerage or will I be allowed to use another mortgage provider if I get a better rate at closing? If they lock the rate do they still honor it during the time of closing even if the rate is higher at that time?
Will it have impact on my credit if the builder runs it now and then 4 months later I shop with other mortgage providers?
How does the process work in this situation? How and when should I shop for mortgage?
It's typical for extended locks (over 60 days) for the lender to either add a premium to the rate like you are experiencing, or charge you upfront for the lock. Unless you have a crystal ball I don't recommend paying any upfront lock in charges, so the way your builder's mortgage company is doing it is the better way.
You aren't ever required to go with a certain mortgage company, however the builder may only offer certain incentives if their preferred mortgage company is used, you'd have to read the fine print.
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