When Builders Lend

by Alex Stenback on February 15, 2005

The LA Times real estate Q & A recently answered a reader’s question that may be on the minds of Twin Cities home seekers out there Parade Shopping this spring:

"We want to buy a new home in a specific development. But the builder insists we use his mortgage company. The terms sound good but…[we'd prefer to shop around]…the builder says, ‘If you want to buy one of my houses, you have to finance it with my mortgage lender.’ Is this legal?"

Their answer, and a few other thoughts on dealing with builder/lender combos by clicking below.

Their answer, in brief, is that it is illegal in most states (Minnesota included) for a builder to require you to use a particular lender, but many [as we've pointed out] use various incentives to make it nearly impossible to avoid.

All of which might leave you wondering: How is it that builders can offer thousands of dollars of upgrades and other incentives, simply for using their lender?

Because it is added to the price of the home.  Added. To. The Price.  They wouldn’t admit to it if asked, but that’s the way it works. Common Practice. 

This doesn’t necessarily mean that builder/lender alliances are out to screw anyone.  A good builder with a reputable lender will more often than not get you a very fair deal on your mortgage.

But here’s where this rubs us wrong: The intent of the law prohibiting builders from requiring the use of a particular lender is to protect the consumers ability to choose their own lender (ie shop around.)  And when the consumer is ‘coerced’ to use a particular lender through "offers-that-can’t-be-refused" (deep discounts added to the price) it amounts to running an end-around on the intent of the law. This makes it all too easy for a not-so reputable builder/lender to really put the wood to consumers. 

The Moral: Do your homework on the builder and the lender then negotiate, negotiate, negotiate.

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Mortgage Calculator
February 21, 2005 at 11:46 am

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Gary Siemens October 31, 2005 at 2:57 pm

Trying to find the artical the LA Times did according to your story dated 2/15/05, When Builders Lend. What date was this artical printed and what section

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