Be Careful With the Pre-Construction Financing Programs

You’ve seen the ads in the newspaper and on television. Home builders and real estate developers offer great mortgage deals and bonuses to help you buy one of their properties.

Aside from the obvious, selling you a house, how do they benefit from these deals? The builder makes a little extra money. More importantly, using their affiliated lender gives them control over the transaction. It’s less likely that a problem will delay the closing.

Today, more builders are offering special deals that may be tied to using their affiliated lender. A recent survey by the National Home Builders Association shows increases in the number of builders who offer to pay closing costs and provide other incentives.

Most buyers do use the affiliate. Pulte Homes, Inc., says 90 percent of its buyers who need a mortgage use Pulte Mortgage. Centex Mortgages finances 80 percent of Centex Corp. customers. By law, however, buyers can’t be required to use the affiliate.

The National Association of Mortgage Brokers claims that builder-affiliated mortgages may not be the best deal. They say builders could reduce the price of the house and make the difference back in higher fees. The U.S. Department of Housing and Urban Development says it gets complaints from the mortgage brokers, but also from some individuals.

Before signing a mortgage offered by a builder, be sure to ask for a written estimate. The estimate should include the interest rate and points, plus closing costs, fees, and terms of the loan.