Mortgage lender incentives, worth it?

 
We're looking at a new house in NC. The builder uses a specific mortgage
company and is offering up to 10k in incentives off the price of the house
if we use their lender.

We're all approved at our bank to do this but we'd pay 10k more for the
house. We haven't signed or done anything yet but if we were to 'bite' at
the builders offer and there were no restrictions for early payoff then
would it be worth it to get the mortgage from them, then refinance in a
month or two? Even if they had a higher rate, still worth it for a couple of
months ?

With standard closing costs we'd still end up 6 or 7k ahead if we the took
the deal and refinanced.  We have good credit and shouldn't have a problem
refinancing.

Almost seems to easy and there has to be a catch somewhere. I'm thinking
that you have to commit to at least 6 months or something. I'm going to chat
with the lender on Monday but looking for advice on what questions to ask

Thanks

Tom

 

Generally these are worth it PROVIDED there is no early payment
pentalty.


This scenario is fairly common.   So long as your real estate attorney
reviews the paperwork and verifies that there is no fee for early
payoff hidden anywhere, these are generally worth it to do for a
little bit.

--
Todd H.  
http://www.toddh.net/

 Builders *always* do this and generally you're better going with the
builder's financing cause they stack the deck to make it irresisible.

 As a finance professional that has structured 100s of builder finance
incentive programs, these programs are nothing but a win-win situation
for all parties involved (if structured fairly)

These seller incentives are legal in their intent and execution, but as
another poster has already pointed out, consult with a RE atty to
determine that what you have been promised has been properly
stipulated.

These seller incentives come in different varieties; reduction of
selling price, below market interest rate financing (rate buydown;
temporary or permanent), closing and escrow payment, agreement to fund
future mortgage payments and many others.

All this being said, this type of collusion (between the builder and
lender) in the wrong hands, can lead to excess.  To ensure that the
in-house lender is not excessively "padding" the interest rates, you
should comparison shop.  If it is proven that the in-house lender is
offering a higher then current market note rate, you will need to do a
total cost analysis to determine which option is more financially and
mathametically sound.  The math will tell you if it was structured in
the vain of "short term gain for long term pain" or with a "fair and
balanced" hand.

I'll give you a simple example to illustrate my point.  What is the
better deal; purchase a a home worth 100K for 100K at 6.5% offered by
your local bank or purchase a home worth 100K for 90K at 7.5% offered
by the builder's in-house lender?  This is how they stack up:

Purchase for 90K @ 7.5% yields a principal and interest payment of
629.00 per month.  After 30 years of fixed payments on the original 90K
in principal, you would have paid 226,546 in total payments and 136,546
in mortgage interest.

Purchase for 100K @ 6.5% yields a principal and interest payment of
632.00 per month.  After 30 years of fixed payments on the original
100K in principal, you would have paid 227,544 in total payments and
127,544 in mortgage interest.  This approach yields a 9,001 net savings
over the life of the loan.

This is just a simple example of how a lower purchase price with lower
monthly payments actually costs you more in the end.

My advice to you; do your homework (comparison shop) and then do the
math.  If you want to post the particulars from both lenders, I will do
the total cost analysis for you.

Regards,

Scott Miller
National Commercial and Residential Lender/Broker
1.877.716.6495
EZMortgageLoanz@aol.com or hugh.miller@carteretmortgage.com

www.RealEstate-IQ.com
www.EZMortgageLoanz.com

 
Thanks so much everyone for your sound advice.

Scott, thanks for the thorough explanation. I'll definitely compare both of
our current options and then have my RE attorney check it all out when we
decide the best choice for us..

Thanks again...

Mark