New Home Financing: Should You Use a Builder’s Preferred Lender? | Mortgages and

Whether you’re buying a home in a new construction community or building a custom house from the ground up, your homebuilder may offer mortgage financing through its preferred lender. And while you’re not required to use the builder’s lender, it may offer incentives like mortgage rate buydowns and closing cost credits to sweeten the deal.

In fact, 62% of builders offered sales incentives in January 2024, according to the National Association of Home Builders. But buyers shouldn’t take these advertised specials at face value, because there could be hidden costs. Here’s what you should know about using the builder’s preferred lender, as well as how to compare your alternative mortgage options.

Homebuilders partner with preferred lenders to offer mortgage financing to homebuyers, and, in some cases, builders have their own in-house lending affiliate. This arrangement is mutually beneficial for builders and lenders, who are able to secure referrals for financing and streamline the mortgage process.

This partnership can also benefit homebuyers, providing the convenience of a one-stop shop for their home purchase and lending needs. Plus, preferred lenders and homebuilders are usually able to deliver added incentives like mortgage rate buydowns and credits toward closing.

Take this example: Lennar, one of the nation’s largest homebuilders, offered some enticing incentives in January 2024, including a fixed mortgage rate of 5.375%, up to $15,000 toward closing costs and price reductions on new builds in the D.C. metro area of Virginia, Maryland and West Virginia.

Of course, always read the fine print: “Offer requires financing through seller’s affiliate Lennar Mortgage, but use of Lennar Mortgage is not required to purchase a home.” In other words, you have to use Lennar’s lending branch in order to qualify for these incentives – but you can (and should) still shop around with other lenders to compare deals.