Should I Use Preferred Lenders Steered By Builders
In this blog, we will cover and discuss preferred lenders steered by builders on a home purchase. Many home builders have preferred lenders steered by builders. Preferred lenders steered by builders are mortgage companies who either have a business referral network with the home builder. In other cases, the builder may have an interest in the mortgage company such as own the mortgage company. In the following paragraphs, we will be covering and discussing preferred lenders steered by builders and violating steering laws.
What Is Preferred Lending?
Alex Carlucci is a preferred lender for several home builders. Alex Carlucci is one of the moral lenders because he does not give kickbacks which are illegal to take the kickback or give a realtor a kickback. Here is how Alex Carlucci answers the question of what is preferred lending. Nothing is illegal or against the law to recommend a lender to a home buyer. But many home builders are crossing the line by pushing and steering their prospective home buyers to go with preferred lenders steered by builders.
Why Lenders Not Like New Builds?
Alex Carlucci a senior licensed mortgage loan originator at Gustan Cho Associates responds to why mortgage lenders do not like new builds. Here is what Carlucci says after he was asked why Lenders do Not Like New Builds:
Most lenders believe new home buyers are paying premium prices for new homes and the home will lose value the moment you move in. It can be very difficult to re-sell a new home (at a fair market price) whilst the house builder’s sales staff is still in development.
Preferred Lenders Steered By Builders Bribed By Home Builders
Homebuyers should not be coerced to go with a particular lender. Homebuilders cannot offer special deals to home buyers if and only if they go with a particular mortgage lender. In this article, we will discuss and cover Preferred Lenders Steered By Builders On Home Purchases. Speak With Our Loan Officer for Mortgage Loans
Homebuilders Steering Buyers To Preferred Lenders
Homebuilders can, however, recommend a particular mortgage company. Whatever incentive they offer a home buyer by going with a particular lender, they need to offer it to the home buyer with whichever lender they choose. If they only offer the home buyer certain incentives if they only go with preferred lenders steered by builders, it is known as steering. Builders who demand buyers to only go with the builder’s preferred lender and not the lender of the home buyer’s choice, they are in violation of steering. They can get fined, shut down, and subject to steering violation by the Consumer Financial Protection Agency,
Can a Builder Insist You Use The Builder’s Preferred Mortgage Broker?
A builder can’t insist that you use their preferred mortgage broker. Builders steering homebuyers to their preferred lender has been a practice for decades. Homebuyers not using the builder’s preferred mortgage broker will not get the same incentives as buyers using the builder’s preferred mortgage broker. Home builders steering homebuyers to their preferred lender can be in violation of the CFPB Anti-Steering laws . Builders who steer borrowers to their preferred lenders by giving incentives and not the lender of the borrower’s choice can get into big trouble.
What Is Steering In Mortgage Lending
The CFPB does not mess around. They are one of the most powerful regulatory agencies when it comes to consumer protection and when it comes to mortgage regulations. The CFPB does not just warn home builders of anti-steering law violations but will assess hundreds of thousands if not millions of dollars in fines.
Should I Use Preferred Lenders Steered By Builders?
When purchasing a new home, builders often recommend using their preferred lenders. These preferred lenders are typically financial institutions with which the builder has a business relationship. While using a builder’s preferred lender can offer several advantages, weighing its benefits and potential drawbacks before deciding is essential. This piece outlines the advantages and disadvantages of using preferred lenders steered by builders. It provides guidance on making an informed choice.
Benefits of Using Preferred Lenders
- Incentives and Discounts:
- Closing Cost Assistance: Many builders offer incentives such as closing cost assistance or upgrades to buyers who choose their preferred lender.
- Reduced Fees: Preferred lenders may offer reduced origination fees, appraisal fees, or other loan-related costs.
- Streamlined Process:
- Smoother Communication: Preferred lenders and builders often have established communication channels, leading to a more efficient and coordinated loan process.
- Faster Approvals: The familiarity between the builder and lender can expedite the loan approval process, helping you close your home more quickly.
- Understanding of Builder Projects:
- Knowledge of Construction Timelines: Preferred lenders are often more familiar with the builder’s construction timelines and can better accommodate delays or changes in the building schedule.
- Project Expertise: These lenders may have experience with the specific builder’s projects and financing needs, leading to fewer surprises during the loan process.
Potential Drawbacks of Using Preferred Lenders
- Limited Options:
- Lack of Comparison: Relying solely on a preferred lender might prevent you from exploring other lenders who could offer more competitive rates or better terms.
- Potential Bias: The builder’s recommendation may be influenced by their business relationship rather than your best financial interests.
- Pressure to Use Preferred Lender:
- High-Pressure Tactics: Some buyers may feel pressured to use the preferred lender to secure builder incentives, which can lead to feeling trapped in a less favorable loan.
- Conflict of Interest: The builder’s relationship with the lender might create a conflict of interest, potentially compromising the objectivity of the loan advice you receive.
- Lender Reputation and Service:
- Varied Service Levels: Some preferred lenders offer different levels of service. Research the lender’s reputation, customer service, and reliability before committing.
- Potential for Higher Costs: Some preferred lenders might charge higher interest rates or charges than others despite incentives.
Making an Informed Decision
- Compare Offers:
Shop Around: Get quotes from several lenders, including the builder’s preferred and independent lenders, to compare interest rates, fees, and terms.
Evaluate Incentives: Consider the value of the incentives offered by the preferred lender and whether they offset any potential higher costs. - Research the Lender:
Check Reviews and Ratings: Review reviews and ratings for the preferred lender to gauge their reputation and customer service quality.
Ask for References: Seek references from former clients who have used the preferred lender to gain insight into their experiences. - Understand the Terms:
Read the Fine Print: Review the loan terms and conditions, including any fees, interest rates, and potential penalties.
Ask Questions: Always ask the lender or your real estate agent questions about the loan process, terms, and any concerns you may have. - Consult a Financial Advisor:
Get Professional Advice: Consider consulting a financial advisor or mortgage broker who can provide unbiased advice and help you navigate the complexities of the mortgage process.
CFPB Anti-Steering Laws
Anti-Steering mortgage rules and regulations were created to protect borrowers. Real Estate companies, home builders, and mortgage companies cannot steer borrowers to certain mortgage programs or certain mortgage companies for their benefits. Companies need to disclose to home buyers and borrowers that they can shop for the best rate and terms.
Preferred Lenders Steered By Builder Through Steering
Lenders need to disclose their mortgage rates and terms as well as other loan options they have. A loan originator cannot offer one applicant a certain mortgage rate and term for a particular loan program and another borrower a more favorable mortgage rate and term for the exact loan program. This is a serious mortgage loan regulation violation. The Consumer Protection Financial Bureau takes this extremely seriously. Speak With Our Loan Officer for Mortgage Loans
How Home Builders Violated Preferred Lenders Steered By Builder
Even though it is against the law, many home builders today are violating anti-steering laws and are getting away with it. Home builders that are offering a builder’s concession towards upgrades and a builder’s concession towards closing costs. There is a catch.
Does The CFPB Regulate Mortgage Companies?
The Consumer Financial Protection Bureau, the CFPB, is the federal agency in charge of consumer protection in the United States. The enforcement duties of the CFPB includes protecting consumers from predatory lending from mortgage companies.
The CFPB regulates not just mortgage companies but other consumer lending entities such as banks, thrifts, credit unions, auto loans, consumer loans, and Payday loans.
Builders are only offering builder’s concessions only as long as they go with the home builder’s preferred lender. The deal is not valid if the homebuyer goes with a different lender. Builders coercing homebuyers into their preferred lenders are in total violation of anti-steering laws and mortgage regulations.
How Do I Know Which Lender To Use?
Not all mortgage lenders have the same lending requirements for the same loan program. For example, a lender can require a higher credit score requirement than the minimum HUD agency mortgage guidelines. For example, you need a 580 credit score to qualify for a 3.5% down payment FHA loan per HUD guidelines. However, a lender may require a 640 credit score to qualify for an FHA loan. The higher credit score requirement by the lender is an overlay on credit score. Therefore, just because you do not qualify with one lender does not mean you can’t qualify with a different mortgage lender.
Case Scenario of Preferred Lenders Steered By Builders
Home builders cannot steer home buyers to go with a particular lender and if the buyer does not go with the home builder’s lender of choice, then the builder incentives will not be offered. In a recent case scenario, I had pre-approved a borrower a while ago for the FHA Back To Work Mortgage Loan Program.
My borrower went shopping for a home and decided to purchase a home with a national homebuilder and decided to go with the home builder’s preferred lender.
This is because they offered him a $5,000 builder’s credit if they went with the home builder. But the $5,000 builder’s credit was not available if he went with me or any other lender. Unfortunately, the preferred lender could not do the loan and the borrower got denied the mortgage loan.
Preferred Lender Steered By Builder Cannot Take Kickbacks
Since the home broke ground and the borrower got a last-minute denial, the home builder told the home buyer if he got another lender that can do his mortgage loan, that they will make an exception and honor the $5,000 builder credit. The home buyer came back to me and I ended up closing the mortgage loan. This is a typical case study where many home builders are violating anti-steering laws.
Kickbacks To Builders By Mortgage Lenders For Steering Borrowers Is Mortgage Fraud
The CFPB is the federal agency in charge of administering consumer protection from potential predatory mortgage lenders. Getting kickbacks from lenders is totally illegal and considered mortgage fraud. Mortgage Fraud is a felony punishable by up to 30 years per count. Mortgage companies giving kickbacks to home builders can not only lose their mortgage licenses but can get fined millions and get charged criminally. Unfortunately, the CFPB does not have the manpower to be cracking down on these builders. Speak With Our Loan Officer for Mortgage Loans
Frequently Asked Questions (FAQs)
- What is a preferred lender?
A preferred lender is a financial institution recommended by a home builder. These lenders have established relationships with the builder and often offer incentives or streamlined processes for homebuyers. - What are the benefits of using a preferred lender?
Preferred lenders can provide several benefits, such as:
– Incentives like closing cost assistance or home upgrades.
– Reduced fees and better loan terms.
– Streamlined communication and faster approval processes.
– Familiarity with the builder’s projects and timelines. - Are there any drawbacks to using a preferred lender?
While there are benefits, there can also be drawbacks, including:
– Limited lender options may prevent you from finding the best rates or terms.
– Potential pressure from the builder to use their preferred lender.
– There may be conflicts of interest, as the builder’s relationship with the lender may not prioritize your best financial interests. - Will I get the best interest rate with a preferred lender?
Not necessarily. Preferred lenders might offer competitive rates, but comparing loan quotes from multiple lenders is essential to ensure you’re getting the best deal available. - Can I still receive builder incentives if I choose my lender?
This varies by builder. Some builders may only offer incentives if you use their preferred lender, while others might provide incentives regardless of your lender choice. It’s important to clarify this with the builder upfront. - How do I know if the preferred lender is reputable?
Research the lender’s reputation by:
Reading reviews and ratings online.
Seeking references from past clients who have used the lender.
Checking their standing with the Better Business Bureau (BBB) and other consumer protection organizations. - What should I consider when comparing lenders?
When comparing lenders, consider the following:
Interest rates and annual percentage rates (APR).
Loan terms and repayment options.
Fees and closing costs.
Customer service and responsiveness.
Overall loan conditions and flexibility. - How can I avoid feeling pressured to use a preferred lender?
To avoid feeling pressured:
Clearly communicate with the builder about your intent to explore multiple lending options.
Take your time to compare different lenders and their offers.
Talk with a financial advisor or mortgage broker for unbiased advice. - What documents do I need to provide to the preferred lender?
Typically, you will need to provide:
Personal identification (e.g., driver’s license, Social Security number).
Proof of income (e.g., pay stubs, tax returns, income statements).
Asset documentation (e.g., bank statements, investment account statements).
Information on current debts and credit history. - Can I switch lenders after starting with a preferred lender?
Yes, you can switch lenders at any time before closing. However, switching lenders may cause delays and affect any incentives for using the preferred lender. Make sure to weigh the pros and cons before making a decision.
For more information about Preferred Lenders steered by builders, you can contact us at GCA Mortgage Group by calling us at 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
