Many of our clients are purchasing new homes from the big builders, and they are always pressured to use the builder's "preferred lender." This takes the form of "incentives" that you "lose" if you don't use their lender. The incentives are usually some combination of a discount to the purchase price and/or contribution towards your closing costs from the builder.
First, let me point out that this is all nonsense. Usually the same corporate parent owns the builder, the preferred lender, and the title company they force you to use as well, or they have an affiliated business arrangement between all of them. All they are doing is running an elaborate scam where they jack up your interest rate and/or fees to generate a huge profit through their preferred lender and title company while giving you a small portion of it back in the form of an incentive to use those companies. It is literally the same thing as them telling you to pay that guy over there $20, and they will give you $10 back. None of you are dumb enough to fall for that, and yet just about every new homebuyer falls for the same scam and gets ripped off on their mortgage and title services.
You'd think that the regulators would be all over this. They in fact briefly outlawed the practice, but quickly reversed themselves since we live in a corrupt banana republic where powerful corporations are free to screw their customers while your government stands idly by. Instead they pass stupid regulations that only effect small businesses like mine, and drive up our costs while doing absolutely nothing to protect consumers from the real bad actors.
It is not unusual for me to quote the same loan scenario as the preferred lender, and even after taking into account the lost incentives still provide a better deal. In a lot of cases the client still wants to go with the preferred lender because they don't want to lose the $10,000 "incentive." I don't even know what to say. If they are charging you $15,000 more than me for the same rate, then giving you $10,000 back, they are not giving you anything except a portion of your own money back. It's a scam.
Then in those rare cases where the client does decide to go with us anyway, the builder and preferred lender try to scare them by claiming we aren't going to be able to close their loan on time and maybe sweeten the pot a little to get them to come back, thus wasting my time and damaging my relationship with the lenders I work with.
Anyway, I'm done wasting my time playing this stupid game. Don't even ask me for a quote to compare to what your builder's lender is giving you unless they are also giving you the same incentives to use me.
So how do you make that happen? The first thing you can do is learn to negotiate effectively. Here are some negotiating tips:
· Never let the salesman get the upper hand. This means that nobody in the house can ever show positive emotions (“I love this bathroom!”) or talk about how you see the sofa fitting next to the fireplace unless it’s balanced with negative talk (“yeah, but the garage is way too small”). Furthermore, always indicate to the salesman that you are looking at other houses you like better. In fact, you might even say that you are serious about making an offer on another house, but don’t want to count him out if he can be competitive.
· Insert "or Dream Home Funding" into the financing sections that name their preferred lender for all incentives effectively making Dream Home Funding a preferred lender too. Initial it on the contract in all places.
· Tell the salesman that you aren’t saying you won’t use the preferred lender; you just want to make sure to keep them honest because if they have a huge incentive to hang over your head, they have no reason to be close to market on the loan. This will make sure that they give you the very best that they can offer or they haven’t earned the business.
· When the salesman says, “we can’t do that”, what he really means is “I won’t do that, but I don’t have authority to make the decision anyway.” Tell him that either they accept it or you are going back to the other house. “We weren’t that excited about this house anyway.” Then tell him to send it up to his manager for approval.
If you can make that happen, then we will be happy to quote your loan, and will undoubtedly be lower priced by a huge margin.
If they refuse to negotiate and give you the same deal if you use Dream Home Funding, and you still want the house, you will probably notice that some builders also give the incentive package to cash buyers. Why is that? It's because they have learned the hard way that cash buyers can always get the loan and incentives, then immediately pay the loan off after closing. Having a loan pay off before they can even sell it does them no good, and just wastes their time and resources, so might as well give cash buyers the incentives too.
Guess what? You can do the same thing even if you need the mortgage, while helping to put an end to the scam once and for all. All you do is have their preferred lender price your loan so they are paying ALL your closing costs and prepaids. Do not let them credit any money from the builder or your REALTOR to those if possible, have them reduce the sales price by those amounts instead, then refinance with us immediately after closing with them.
This will result in a much higher interest rate on the mortgage from them, but who cares? You are never going to make a payment on that loan and will only pay a month of interest anyway. I have attached some worksheets illustrating the huge savings to be realized by doing this here. If you are worried about rates increasing, we can even do a 60 day lock on the refi so you will know what the rate and costs on it will be before you even start on the loan for the purchase. Do not tell the preferred lender you intend to refinance right away or they won't price the loan this way.
Small price (probably a few $100 extra in interest depending on your loan amount) to pay to get $10,000 worth of "incentives," and in this case you will actually get the $10,000 plus all the money the lender paid for prepaids, which could be an additional $10,000 depending on the time of year you are closing and how high the taxes and insurance are, since that money will be refunded to you a few weeks after closing on the refinance.
After they get burned on a few of these deals, they will have to either start offering the incentives to everybody or stop offering them completely and price their homes and services honestly. Either way would be a victory for all homebuyers, and it's the only way it will happen since our corrupt government isn't going to do anything about it.
Many of you work with REALTORS who are giving you commission rebates. There are only two legal ways for you to receive that money if you are getting a mortgage, and one is much better than the other.
First, the money can be applied to your closing costs and/or prepaids. If you do this, you may find that your REALTOR is going to send you a 1099 and you will have to pay income tax on that money. If you are going to immediately refinance with us, this money will be lost since it is essentially being used to buy down the rate on a loan you are only going to have for a month when that usually only makes sense if you will be keeping the loan more than 7-8 years, so it would be much better to receive the money the other way, and have the preferred lender pay all your closing costs and prepaids.
The other way is to have the builder reduce the purchase price by the amount your REALTOR was going to give you. If you do this, there is no taxable income to you or your REALTOR. You will just be paying less for the house, and the builder will be paying less commission. When you sell you will get all of the rebate, and under most circumstances it will be tax free.
Your REALTOR may tell you he can just write you a check after closing and give you a 1099, which is fine if you are a cash buyer, but if you are getting a mortgage turns you into a felon. Lenders view that as your REALTOR paying a portion of your down payment or refunding part of your down payment, and they do not allow that. If you don't tell them about it, it becomes mortgage fraud since you concealed something that would have led them to decline your mortgage had they known about it. Plus you will have to pay income tax on that money.
I hope you found this helpful. Feel free to contact us if you have any questions, and we will happily explain it in more detail. Also call us if you would like guidance on how to structure your own deal to take advantage of this, and see how much you will save by doing it.