Are You Getting The Most From Your Lender?

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If you’re building out a subdivision and have a preferred mortgage lender to ease the purchase process for your buyers, are you taking advantage of all the programs the lender offers?

There are multiple reasons for having a preferred lender, especially one who specializes in new construction, at your site. It makes the process easier for your buyers, thus locking up sales. A preferred lender, for example, can offer rate protection, locking in the interest rate over the life of the home construction. In addition, a preferred lender can offer bridge-loan financing, ensuring that cash is available for a down payment.

A preferred lender also might be able to finance options and upgrades to help maximize builder profitability. And potentially most important to a builder, a preferred lender can close the loan when the certificate of occupancy is completed, as opposed to having to wait for a review period as required by many mortgage companies.

Besides assisting on the buy side of transactions, preferred lenders might have other programs to assist builders. For builders selling approximately $25 million or more per year, a preferred lender might rent space at a model home or trailer so its representative can be on site. While the monthly desk-rental fee must be proportional to the space used by the representative lest it be viewed as a kickback, it provides a small monthly revenue stream to the builder.

Even builders without sufficient annual volume for a site-rental agreement should ask their preferred lender for a marketing agreement so they can joint-venture (co-op) advertising. The lender’s intent is to help the builder sell homes so the lender can write mortgages. In turn, the builder can market a subdivision with the lender’s paying a negotiable percentage of the marketing expense. This type of arrangement is especially attractive to lenders if a builder has multiple construction sites.

Smaller builders who want to get in on the mortgage end of lending probably should forget the thought. Unless you are a licensed mortgage banker, your lender can’t provide commissions or other payments for buyers you refer to it. But once annual volume approaches $200 million, a builder should explore joint-venturing mortgages with a lender. Until that point is reached, however, mortgage participation is too expensive for a builder to consider. But builders with enough volume should check into programs offered by lenders that specialize in new home construction. As Michael Borodinsky, a regional builder manager for Wells Fargo Home Mortgage, says, “Builders who allow the real estate agent to control the mortgage process may not be doing themselves a service.”

Stan Ehrlich, a past president of his 550-member local builders association, is a personal financial adviser in Clinton, N.J. He can be reached by e-mail at sfehrlich@rcn.com [1].