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Hi there! I was hoping to get some advice on what to do in terms of the mortgage on my new construction home. I will be closing on the house on August 22nd, and I still haven't locked in a mortgage rate with a lender. Here is my dilema and info:
If I use their lender, the builder will give me an incentive of $15,000 off the cost of the home, which is $235,000 (bringing it down to $220K), plus $6,000 off of the closing costs.
Now, I am in the process of shopping around for a mortgage and comparing the rates to those of the builder's lender. I have a high credit score of around 780-785, and I am putting 20% down (30 year conventional fixed). The home is in Florida, but not in one of the really really depressed areas of the housing market (though the market is definitely soft, which is how I got a great deal on a new construction house). Also, the neighborhood is all built out now--I got one of the last lots.
Okay, so I found that as of the close of the day this past Friday (when rates had jumped significantly), I could get a lock-in rate of 6.35% from an outside lender, OR I could get a 7.125% rate from my builder's lender (0 points on both offers). I got really really annoyed with the builder's lender, because when I tried to negotiate the rate, which had been 6.85% just a few hours earlier (before I told them that I would like a lower rate since I was offered 6.35% from someone else), they told me that considering the $21K incentive I was getting, they felt their 7.125% was quite competitive with the 6.35%. Then they said that if I pay $6K in points I could buy my rate down to 6.25%.
I am fuming about their approach to me. I am willing to pay a slightly higher rate with the builder's lender, but this is ridiculous in my opinion. I did the math, and over the life of the loan, the builder's lender has nullified the incentives completely.
So how should I approach this situation? Is there anything I can say (without sounding like an idiot) to the builder's lender that would...er...inspire them to lower my rate? I just can't believe that with such a high credit score as well as a 20% DP I would get stuck with a 7.125% rate. Any advice? I don't want to cut off my nose to spite my face, but I am even thinking of walking away from my $5K deposit. Am I able to make an offer to them? For instance, am I able to say: "Look, I'll lock in a rate with you right now for 6.65%, otherwise I will go with another lender." Would that make them move down on the rate? This is my first home, and I've never shopped for a mortgage before.
I would talk to the lender and the builder. Mention to them the discrepencies between the costs. Take a good faith estimate from both for the same day and talk to them about how the costs of their lender should be competitive otherwise they aren't acting in good faith. They don't want you to pull out of the deal so they should have something to say about the reason for the difference. They make the money on the house not the loan, (I'm sure they make money their too) but the loan is a small profit compared to the house.
I think what they are saying is the deal is the same as what the lender is giving you, but you are paying for it in the long term. The difference in monthly payment is very small. So really, it isn't necessarily a deal unless you need the incentives now. That's the question.
You might also check other lender's offers, some will cover partial closing costs too. I know Bank of America was offering this before, not sure about now. My credit union has deals to cover much of the closing costs.
On our last house we used the builder's lender to buy the house. Then we turned around and refinanced with ING before even making a payment. At the time ING was offering a no closing cost refinance.
Wow! That sounds really intriguing! The cash to close is really the only benefit I would get in the LONG term from my builder's lender, since the higher rate nullifies the long-term savings on the incentives.
My only concern, Suzie02, is that with the "mortgage crisis" that you hear about so much in the news these days, I am not sure whether refinancing will be widely available.
If you are putting 20% down you don't have to worry abut the "mortgage crisis". We just bought our new house with 20% and had no issues at all. Now if you want to get a 100% financing forget it. Just call around and ask about refis.
If you try to refi, then you must check the builder's loan fine print. You may have penalties for early payment. I got closing cost benefits but only if I didn't payoff in 2 years (which I wasn't planning on).
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