It’s important to remember that you have the right to choose your own lender.
Sometimes builders will encourage you to use their preferred lender by offering incentives like upgrades or discounts that can seem pretty compelling.
Here are a couple of things to keep in mind.
First of all, nothing is free. In most cases, the cost of the incentive is being added back into the loan in ways that can be hard to recognize if you don’t comparison shop. Do you mind if I share a couple of things to be careful of?
i. Occasionally they may be charging an origination fee based on a percentage of the purchase price rather than the loan amount. This can dramatically increase the closing costs you would pay.
ii. Another example is when they raise the interest rate just slightly. By increasing the interest rate by 1/8th, or 1/4th or even ½ a percent, it can increase the amount of money they earn on the loan which is often how they pay for the incentive. Even though the amount of your monthly payment may not go up very much because of this, it can really add up over time.
iii. In the event that it is a builder upgrade that is being offered, it is typically at an inflated value which really reduces the benefit of the higher terms you would get from their preferred lender. Sometimes those $5,000 kitchen upgrades are really only $1,500 worth of actual value so you want to be careful there.