Lack of resale home inventory has more and more home buyers looking instead at new homes in El Dorado Hills and Folsom. While buying a new home is not entirely different from buying a resale home, there are important differences. For instance, in a resale transaction, it is most usual for each side to be represented by their own real estate agent. With new homes, the builder would rather you represent yourself (here’s why that’s a bad idea). Many builders will also entice you to finance the home through their lender – kinda like a car dealer offers direct financing. Again, we suggest as close a look at a builder’s loan offering as we do their suggestion you represent yourself in your purchase. Read on for more!
Do I Have to Use the Builder’s Lender and Real Estate Agent?
The real estate industry does a spectacular job educating first-time homebuyers. There’s so much valuable information out there that no buyer should go through the process uninformed. Buying a home in a new community – a brand-new home that no-one has ever lived in – is first-time homebuying on steroids. Beware, though. The industry has left the homebuyer behind in terms of offering information and sharing knowledge about the process. From the home loan process to choosing your real estate agent, it doesn’t have to be confusing. Read on to learn answers to the two most common questions we receive from our clients who are considering buying a newly-constructed home.
The preferred lender
Many potential new homeowners walk away from the model home tour under the assumption that they must use the builder’s lender as a condition of the purchase. Is it any wonder?
Some builders’ representatives use carefully-chosen words to make buyers believe this
In fact, nothing could be further from the truth. The builder may, and likely will, require you to obtain loan pre-qualification from the builder’s lender, or your own. In the end, you can borrow money for the home from whichever lender you chose.
If you use the builder’s lender, you often will be offered good deals. They may offer to pay your closing costs or entice you with a specific amount toward upgrades or other incentives if you obtain your mortgage from them. Other builders will reduce the price of the home or throw in attractive upgrades as an inducement to use the builder’s lender. These incentives are a challenging to put into monetary terms so you may need to do some homework. You’ll need a dollar figure to work with when comparing the builder’s lender to your offers you get from your own.
Incentives may turn out to be worthless when compared to other terms such as the interest rate and points charged
Go ahead and allow the builder’s preferred lender to pre-qualify you for a mortgage – you are in no way obligated to use the builder’s lender in exchange for loan pre-approval. By doing this you’ll get a Loan Estimate that you can use to compare this lender’s offering against others you obtain on your own.
The Consumer Financial Protection Bureau offers a sample of the Loan Estimate form, with explanations, on its website. My best advice to my clients is to go loan shopping before you step one foot into a new home community’s builder’s office. Have facts and figures in-hand, ready to compare to what the builder’s lender will offer. If you don’t have this backup, there’s a good chance you’ll get swept up in the excitement of buying a new home, perhaps falling in love with one of the model homes, and your emotions will take over. Armed with hard facts (offers from other lenders), on the other hand, you’ll be able to react logically instead of emotionally and making a mistake you will be paying for in years to come.
About the builder’s real estate agent
Just as it’s never a good idea to use the homeowner’s real estate agent when buying an existing home, it’s unwise to use the builder’s agent, and here’s why:
The owner’s agent, whether a homeowner or a builder, has one overriding aim: to get the owner the most amount possible for the home
The buyers’ agent, your agent, on the other hand, seeks to help you spend as little as possible for a home. See how the two duties are different? Regardless of how congenial, knowledgeable and eager the builder’s agent is, you need your own representation.
You’ll be asked on your first visit if you’re working with a real estate agent and your answer should always be “yes”
To be safe, we recommend that you ask your agent to accompany you on the first visit. If that isn’t possible, register your agent when you sign in. Some builders are so interested in you not being represented that they won’t compensate an agent that you haven’t registered on your first visit!
Instead of using an agent with divided loyalties, you need to have your own representative who will go to bat for you in negotiating upgrades and extras, guide you during the inspections and assist you in taking care of all those details during the transaction.
Buying a home is an expensive endeavor. A good real estate agent will protect from making what could be even more expensive mistakes!