My wife and I make an offer on a home under construction. The reality agent, who works for the builder, encourages us to use their lender, if we do, the builder will pay all closing cost.

Upon pre-approval from their lender, we receive an interest rate of 6%. It seemed high at the time, but was a little lower than our prior approval from another lender. My credit score is 780, very little debt.

We signed a contract on the house with the builder paying all closing.

As rates began to fall, I found this lender always quoting us .250 - .375 higher than the rates I'm being quoted elsewhere. Last Sunday, I asked the realtor if by us having the builder pay all closing, if that was effecting me getting the lowest rate? She talked to me like I was a complete moron. I asked her if the closing cost were being waved by the "preferred lender" and then them charge me more interest. She acted like I had just slapped her momma!

Today, after receiving an offer at 5% from an out of state lender, I call the "preferred lender". She quotes me 5.65% today, but tells me they could be going up by tomorrow. I bite my tongue for a second, then ask her if I can get a better rate if the builder wasn't paying closing cost. Her reply, "Well, since you asked, I must tell you the truth, you could get a much better rate". She then tells me she can give me 5.25% if the builder weren't paying closing. Is everyone running a con or what? Another case of me almost getting screwed for trusting people. When will I learn.

If it weren't for this being my wife's "dream" home, I'd tell them all where they could stick it. The way that realtor talked to me when I suggested something fishy was going on, I don't care to ever see her again.

So is this crap legal? Let me guess, it goes on all the time.

Always to get the best rate you will have to pay the costs.  It is very common to pay the costs for a client by charging a higher rate.  I have clients refinancing right now that are only keeping their home for another year.  It would not make sense for them to refinance and pay closing costs since the break even point(time it takes to recoop your closing costs with the savings) would be longer then how long they plan to keep the house.  However, i can give them a slightly higher rate which is still over .50% better then their current rate, and no closing fees added to the loan.  At the higher rate, the lender i am taking them to will pay me enough money that i can pay the clients closing cost and still make a profit.  I explain all of this to my clients ahead of time and at the end of the day if they can refinance, get a lower rate and a lower payment and it costs them nothing why wouldnt they do it.  So a broker paid or lender paid closing cost loan is a good loan for certain people.  For people planning on keeping their home for more then 3 or so years, then i would advise them to pay costs to secure a lower rate.  It is very easy to determine the break even point.

It seems in this case the loan officer that you were coerced into using by the builder didnt fully explain. 

I am married too, so you better close. 

John,

I would confirm that the loan has no prepayment penalty and refinance after the purchase.

I know this question should be directed at the realtor, but since I don't trust anything she says, What's the worst that could happen if I call the realtor and tell her I'll be using my own lender, and I'll be paying the closing cost?

Would it void the contract? I guess I'm asking what's the worst consequences? If I ask her that, she'll probably tell me jail time.

Oh, thanks for the responses.

I am a realtor in NYC, and had a very similar circumstance two years ago. My clients fell in love with a new construction that was still months away from completion. We were urged to use their lender. I advised my clients to shop around and make sure this was the best rate for them. Of course, we found better. After re reading all the binding agreements, we found that we were not tied to the lender and went with Wells Fargo and paid the closing costs. It was better for my client. I strongly urge you to read the fine print.

It is illegal for them to force you to use their inhouse lender if you want to buy a home from the construction company.  They can require that you get pre-approved with them, but that's it.  Sometimes lenders will do free upgrades or other perks if you use their inhouse person, but through pressure, we have gotten the companies to throw in these perks and allow outside financing through our brokerage.

It does not sound illegal on what the loan officer at the lender did however.  They did a horrible job at not giving you options on the paying closing costs vs not paying, but it is not illegal to not give those options.  You obviously know more that the RE Agent and possibly more than the loan officer. 

Can you fire the RE Agent?  Why should she get the commission when she is not doing her basic job, making sure you get the best deal.

I'm not sure of the new home construction situation in your area, but many construction companies around the country are in deep trouble with lots of inventory that has been sitting for a while.  Most buyers have a great deal of leverage right now on new construction deals.  Please keep that in mind.  Just make sure not to do anything to jeopardize your deposits.  Good luck.

Unfortunately, it sounds like the preferred lender is taking advantage of the builder's offer to pay your closing costs.  They are simply counting on you not going to another lender to avoid paying closing costs. 

Doesn't sound like you have a real estate attorney involved in this deal, if you have any concerns about what your purchase contract binds you too, consult an attorney asap.  You need to know your rights as a buyer, and not being defined by what the realitor tells you.