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So I am planning to buy a new construction and i have been in talks with a couple of lenders doing my due diligence. The developer has its own lender and they said they will give 6k credit towards closing costs.
Now, I don't know what rate I will get from the lenders, the "ideal" situation would be the developer's lender gives me the lowest rate AND i get credit so I don't need to think twice. But, one of my lenders did say I could refinance to get a potentially lower market rate after I sign with the developer's lender (and reap the lender credit benefit) since the lenders for developers don't necessarily give best rates. I did to a little research on points and lender credit and how lender credit is reverse points and that could mean i get a higher rate at cost of getting $$$.
I have a couple of questions:
Is it OK to ask the developer about refinancing? I don't know if they care if i sign with them and then couple months later refinance. I am also concerned about potential penalties or return of closing costs. If asking them will alert them then i rather not.
Is this strategy legit? It does sound fine - get the lender credits then refinance at lower rate. Naturally it has to make financial sense on the refinance as well.
Does it make sense to "shop around" lenders? I only kept in touch with 2 lenders for pre-approvals. One lender gave me a higher pre-approval rate than the other. Should I reach out to that just as due diligence?
Thanks! Just nervous since this is my first purchase (and dip into big loans).
Just ask them what, if any, the penalty for early payoff is... If you don't want to use the word refinance... The builder is likely gojng to sell the loan, anyways.
So I am planning to buy a new construction and i have been in talks with a couple of lenders doing my due diligence. The developer has its own lender and they said they will give 6k credit towards closing costs.
Now, I don't know what rate I will get from the lenders, the "ideal" situation would be the developer's lender gives me the lowest rate AND i get credit so I don't need to think twice. But, one of my lenders did say I could refinance to get a potentially lower market rate after I sign with the developer's lender (and reap the lender credit benefit) since the lenders for developers don't necessarily give best rates. I did to a little research on points and lender credit and how lender credit is reverse points and that could mean i get a higher rate at cost of getting $$$.
I have a couple of questions:
Is it OK to ask the developer about refinancing? I don't know if they care if i sign with them and then couple months later refinance. I am also concerned about potential penalties or return of closing costs. If asking them will alert them then i rather not.
Is this strategy legit? It does sound fine - get the lender credits then refinance at lower rate. Naturally it has to make financial sense on the refinance as well.
Does it make sense to "shop around" lenders? I only kept in touch with 2 lenders for pre-approvals. One lender gave me a higher pre-approval rate than the other. Should I reach out to that just as due diligence?
Thanks! Just nervous since this is my first purchase (and dip into big loans).
I guarantee that there will be some language in the closing docs that spell this out.
Ask them what the rates are today and then look up the rates for your other preferred lender as a comparison. Most are published on lender's websites. For instance, today's rate for a 30 year-fixed mortgage with Northwest Federal Credit Union is 3.037%.
Personally, I have an inherent distrust of using a builder's lender, appraiser, inspector, etc. I prefer to work with people/organizations that are working in my best interest. There's a reason why the builder's lender can give you a closing credit.
I guarantee that there will be some language in the closing docs that spell this out.
Ask them what the rates are today and then look up the rates for your other preferred lender as a comparison. Most are published on lender's websites. For instance, today's rate for a 30 year-fixed mortgage with Northwest Federal Credit Union is 3.037%.
Personally, I have an inherent distrust of using a builder's lender, appraiser, inspector, etc. I prefer to work with people/organizations that are working in my best interest. There's a reason why the builder's lender can give you a closing credit.
Do lenders "rate match" others? Ideally, i would like the 6k rebate AND have lowest rate among the lenders so that I don't need to bother with refinance at all. If I go to none-in house lender and they give me 2.9, 2.94 and the inhouse fives 3.03 - do i have any leverage or bargaining power to get them to match?
Quote:
Originally Posted by DAXhound
Just ask them what, if any, the penalty for early payoff is... If you don't want to use the word refinance... The builder is likely gojng to sell the loan, anyways.
Does saying refinance trigger them in anyway or make them give me a better/worse deal?
Depending on the loan balance, refinance cost can easily wipe out the 6k credit.
I would get quotes from multiple lenders and see if you can use that to leverage the developers lender if they're rate is higher. When if it's only .125% difference, at 30 years and hundreds of thousands of dollars loan the difference in interest can quickly eat that 6k.
Don't go with the builder's lender. Go small and local. Going with the builder's lender may or may not be "ideal".
For the builder? Yes. For you? Mmm...I wouldn't make that assumption.
Have your financing be independent of the builder or seller.
The credit isn't "really" coming from the lender, it's coming from the builder so at times it can be hard to compare against an outside lender.
Depending on your loan type, a lender (not affiliated with the builder) can get close or sometimes even beat the builders lender credit, but a lot of times that might come with a higher rate.
I'd ask the builders lender to send you a breakdown so you can compare against your lender. If the builders lender is charging 1% origination, and another lender is charging a flat fee (much lower than whatever 1% equals typically), the builder lender credit might be a wash. My preferred lender charges around $1300 flat fee, on a 700K purchase, if a builder lender is charging 1% for example, that's almost 6K more in closing costs
And don't worry about mentioning refinancing to the builder lender. Like stated previously in this thread, most cases, the builder lender is going to sell the loan anyway. You might find you have to wait 6 months or so to refi (depending on the new lender you intend to refi with), but most likely you'd have no issue doing it. I can't recall ever seeing a prepayment penalty with a builder contract (where you'd be penalized if you paid the loan off early, ie did a refi)
hmmm so is it worth using the credit from builder as points or toward closing? I am also planning to buy a SFH later on (~10 years) so idk if keeping low interest is better vs just taking the credit. I guess the lender from builder could have the best rate but they are not fighting for business in a way since the 6k incentive might bring customers to their laps?
The builder NEVER has your best interests at heart, only theirs. Shop around and get the best deal outside of the builder's "in-house" lender.
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