New Construction
Should I use the builder's preferred lender and accept their rate buydown?
By Steve Lockhart
The short answer
When a builder's preferred lender offers a rate buydown or closing cost credit, there is real money behind it, and the builder pays because the lender brings them business. The incentive can lower your payment for the first year or two, or permanently, depending on the structure.
Full answer
When a builder's preferred lender offers a rate buydown or closing cost credit, there is real money behind it, and the builder pays because the lender brings them business. The incentive can lower your payment for the first year or two, or permanently, depending on the structure. It can be the best loan available, and it deserves a serious look.
It also deserves a serious comparison. The same loan from your own lender may carry a lower rate with different fees, and the builder's credit may be offset by higher costs somewhere in the estimate. Loan Estimates let you compare apples to apples, including the buydown structure: a temporary buydown steps your payment up after year one or two, and your real budget should be built on the stepped-up payment.
Watch the strings: the largest credits often require the builder's lender and sometimes their title company or closing office, and incentives can be tied to closing by a specific date. If the build runs late, ask whether the rate lock and incentives survive the delay. A good deal that disappears with the schedule is not a good deal.
Go a little deeper
Frequently asked
Questions people often follow up on
What is a temporary buydown?
A temporary buydown lowers your interest rate and payment for the first year or two before stepping up to the full rate. A common structure is the 2-1 buydown, where the payment is lowest in year one, higher in year two, and full from year three on. Budget to the full payment, not the teaser.
Can I compare the builder's lender with my own before signing?
Yes, and you should. Ask the builder's lender for a Loan Estimate, get one from your own lender for the same loan amount and program, and lay them side by side: rate, points, fees, monthly payment, and the value of any credits. The lower total cost wins, not the shorter sales pitch.
Will using my own lender cost me the incentive?
It may. Many of the largest credits are conditioned on using the builder's affiliated lender, and buyers who use their own lender sometimes receive a smaller credit or none. That is why the comparison must include the full package, credit and all, to see which path is genuinely cheaper.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: let the two loans compete in writing. I help you get matched Loan Estimates from the builder's lender and your own, read the buydown structure, and add the incentives, so the choice of lender is made on total cost, not on the warmth of the sales center.
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