(VIDEO) Buyers Beware! – New Construction Loan Pitfall
Would you spend $180,000 to save $10,000? It may (and should) sound crazy to you, but that’s exactly what can happen if you don’t carefully evaluate a lender tie-in when you’re buying a new home. At the outset, having the builder offer closing cost help in exchange for using their preferred lender may seem awesome, but if that interest rate is substantially higher, it could end up costing you WAY more in the long run.
The numbers I mention here are from a REAL scenario. I was able to make the case that my clients would either 1) be paying a much higher monthly payment and almost $180,000 more over the life of the loan in order to save $10,000 in closing cost help up front (a credit that had been negotiated before they knew what the interest rate would be), or 2) they would have to give up the credit, which wouldn’t be fair to them.
The good news is that the builder and their lender saw the light and ended up matching the competitor’s interest rate AND keeping the $10,000 credit in place, but without an advocate on their side, my clients might have had a very different outcome. The best part is that my representation didn’t cost them a dime, because the builder paid my commission (as most do in this area).
Know someone who’s thinking about buying new construction? Encourage them to have an agent before they even walk through the model home door!