The Builder’s Preferred Lender:
Is the Incentive Worth It?

By Megan Stephens, REALTOR® · Realty ONE Group · Summerlin, Las Vegas

Almost every builder selling in Summerlin owns a mortgage company or works with one it calls “preferred.” Lennar has Lennar Mortgage, Toll Brothers has Toll Brothers Mortgage, Taylor Morrison has Taylor Morrison Home Funding, Richmond American has HomeAmerican Mortgage, KB Home works with KBHS Home Loans. And almost every incentive sheet in a Summerlin sales office carries the same line in small print: with use of the builder’s preferred lender.

That line is where a lot of the real money in a new-construction deal sits. Sometimes the in-house lender is plainly the best option on the table. Sometimes the “free” closing costs are paid back in the rate. Here is how to tell which one you are looking at — before you sign.

Why builders tie the incentive
to their own lender

It is not mysterious. A builder that controls the financing controls the closing date. It can see your approval moving, it knows the appraisal will be ordered on its schedule, and it can carry the cost of a long rate lock or a buydown across hundreds of homes. A closing that lands on time is worth real money to a builder with a quarter to finish — so it pays you, through the incentive, to keep the loan in the family.

That also means the incentive is genuine money. The question is never “is this a trick?” It is “is the incentive bigger than whatever I would give up by not shopping the loan?”

What the rules allow —
and what they don’t

Federal settlement rules (RESPA) draw the line in a useful place. Generally a builder may not make using its affiliated lender a condition of selling you the house, and when it refers you to a company it owns a piece of, it owes you a written disclosure of that relationship. What it may do is offer an incentive you only receive if you choose that lender.

In practice that leaves you with a real choice: take the incentive and the in-house loan, or use any lender you like and give that particular incentive up. The base price, the lot and the contract stay the same either way. Ask the sales counselor to show you, in writing, exactly which line items disappear if you finance elsewhere.

Three common shapes
of the incentive

• Closing-cost creditA flat dollar amount toward lender and title fees, usually capped and usually only usable for closing costs — not as cash back and not against the price.
• Rate buydownA permanent buydown lowers the rate for the life of the loan; a temporary one (the familiar 2/1) lowers it for the first year or two and then steps up. I break those down in how rate buydowns really work on a Summerlin new build.
• A flexible “use it how you want” amountA dollar figure you can split between closing costs, a buydown or sometimes design-center upgrades — but still only with the preferred lender. The split you choose changes what it is worth to you, so run it more than one way.

The side-by-side that
settles it

The comparison only works on paper, and the paper is the Loan Estimate — the standard three-page form every lender must send within three business days of a complete application. Because every lender uses the same form, you can lay two of them next to each other and compare line for line:

• Step 1 — same loan, same dayAsk the builder’s lender and one outside lender for an estimate on the identical loan: same price, same down payment, same loan type, same lock length. Rates move daily, so get them the same day.
• Step 2 — the rate and the pointsPage one shows the rate; page two shows what you are paying to get it. A lower rate bought with points is not the same offer as a lower rate with no points.
• Step 3 — lender chargesCompare the origination charges on page two. A generous credit that pays for an unusually high fee is a smaller credit than it first looks.
• Step 4 — cash to close and the monthly paymentThen subtract the builder incentive from the in-house estimate and look at both numbers: what you bring to closing, and what you pay every month for as long as you expect to keep the loan.

Credit scoring models generally treat several mortgage inquiries inside a short shopping window as a single inquiry — somewhere between 14 and 45 days, depending on the model — so keep the comparison tight and it will not cost you points.

When the in-house lender
usually wins

• The incentive is large and specific. A meaningful credit or a below-market rate that only the builder can fund is hard for an outside lender to match.
• Your home is not finished yet. On a to-be-built home the builder’s lender can often hold a rate for the length of the build at no extra cost to you. An outside lender may charge for an extended lock, or may not offer one that long at all.
• The closing date is tight. On a quick move-in home with a fixed close-by date, a lender already wired into the builder’s schedule is less likely to make you miss it.

When an outside lender
can win

• The incentive is small next to the difference in rate. A modest credit can disappear inside a few years of a slightly higher payment.
• Your file is unusual. Self-employed income, a jumbo loan in the luxury villages, or a VA benefit you want handled by a specialist can all point to a lender who does that kind of loan every day.
• You plan to refinance or sell soon. A temporary buydown or a credit only pays off over the time you actually keep the loan.

Questions to ask the
sales counselor

• Exactly which incentives depend on the preferred lender, and what is the dollar value of each?
• Does the incentive also require the builder’s title or escrow company?
• What is the contract and closing deadline for this incentive, and what happens if the close slips?
• Can the amount be moved between closing costs, a buydown and upgrades?
• If I start with your lender and switch later, what do I lose, and by what date must I decide?

The current offers, with their deadlines and lender conditions, are on my Summerlin builder incentives report, refreshed as the builders change them. Builder-by-builder detail lives on the Lennar, Toll Brothers, Taylor Morrison, Richmond American and KB Home pages.

Buying from out of state

Many of the buyers I work with are still in California, Washington, Arizona or Texas when they decide. The lender comparison works the same from anywhere — it is all paper — and the house part works on video: I walk the models and the actual homesite on FaceTime and send you the incentive sheet the same day. See how it works and the relocation guide.

One thing has to happen first: register with me before your first visit to any Summerlin model, in person or online. Builders honor whichever agent is named on that first sign-in, the builder pays your agent on new construction, and someone on your side is exactly who you want reading two Loan Estimates with you. More on that in do you need a realtor for new construction.