New Home Deposit Question

R

rtlguru_IHB

New member
Hello everyone. I'm thinking about purchasing a new home. I have a question about the deposit. There are incentives tied to using their lender. I'm worried I won't get a competitive rate. If i have already signed a purchase agreement and paid the deposit, can I still get the deposit back if the loan is not competitive and I decide to walk? Thanks
 
<p>Not likely, especially in this market. Some reports claim that you might get it back when the house is eventually closed by another buyer.</p>

<p>Please do a search on deposits for more discussion.</p>

<p>SCHB</p>
 
Not all builder lenders are non competitive. I shopped around for the best rate for my house, and it turned out that my builder's lender offered me the best rate, and the the incentive. What you need to do is to ask them to "broker out" the loan in order to secure the best rate. Their in house rates are always high.



Usually the incentives tie to using builder lender is relatively small - in the $2500 to $8000 range according to my experiences. So this factor alone shouldn't make your deal for better or worse overall.



In terms of getting back your deposit, you can do so only if you haven't removed your loan approval contigency. That is usually 45 to 60 days your signed the contract. Builder has no legal obligations to return your deposit once the loan contigency is removed. I know they do it somethings in the past since they have a waiting list. Given the current market condition, don't expect that to happen.
 
Thanks for your detailed response Irvine. The incentive is 75K, so it is very large. Otherwise, I would go with penfed's 5 year arm that resets every 5 years at 5.25% with no points.





Can you explain the loan contingency in a little more detail? Does this mean the contingency gets removed as soon as I am approved for a loan? Or it gets removed when I sign the loan documents. In other words, is the "approval" required by both the lender and myself?
 
Once your loan is approved by the builder lender (usually it is required regardless you use them or not. The contract you signed states that you have to submit loan application to builder lender within certain amount of days), that means you have removed the loan contingency. "Approval" means approval by the builder lender.



If one has a divorce, lose of job ( not you quit to start your own business), then you might be able to make a case to get your money back. Builder usually require proof of divorce, lay off, etc.



Not sure I understand your 75K loan related incentive. Do they give you 75K credit at closing? Or do they give 75K to buyer down loan? In other words, is this funny money or real moneY??
 
This is real money I can use to buy down loan, or use for upgrades as long as i close with their lender.



Let me see if i understand now. I will sign a contract to buy. This contract will require i submit a loan application in x days. Does the loan application I sign, which removes my contingency, have the exact type of loan and the rate or is it simply a generic application for approval and I'm stuck with whatever they give me? Sorry for the questions. As you can tell, I'm a first time buyer.
 
In a new home purchase, once your loan is approved by your builder lender, or you submitted a approval to the builder via the sales office from a lender of your choice, the loan contigency is consider removed ( you don't need to sign anything like in a resale). Once your loan contigency is removed, unless you have other contingencies stated as part of the purchase agreement, legally the builder can keep your deposit if you want to back out. IN other words, you are NOT stuck with any loans (from the builder or your lender), it just means you are "stuck" with the home unless you are ready to walk away from the deposit. If the builder is nice, and you have special circumstance like divorce, lose of job etc, you might get a break. If you have job transfer, they won't give it back to you either in this market.



You don't have to make a decision on the loan until closer to closing. I still have a hard time to believe this entire 75K is tied to using their lender. You might want to call them or read the agreement to double check. Who is the builder? Usually incentives towards upgrades are completely seperate from the incentive towards using their lender. There is a seperate appendix you have to sign stating that you have no obligation to use their lender, however if you do use their lender, the incentive is x amount.



Here is my suggestion for you: first, do you homework, make sure you understand exactly how this incentive works. Secondly, call your builder broker and tell them their rates are too high, and you want them to broker the loan out. Usually, they can broker out the loan to most major banks (at least that is what I was told by my builder lender).
 
I'm in the process of purchasing a new home and I got similar incentives from the builder. They said if you go through Countrywide, they would give us a $50K incentives toward closing cost and options. So we asked them if they could apply it toward the price of the home and they had no problem doing it. I recommend applying it toward the price of the house.





As for sticking with their lender, I recommend you tell them you want a competitive industry rate. They won't have the best rate but usually pretty competitive. That doesn't really matter too much, you can easily refinance your loan once you moved in. It's much easier to go with the builder's lender because it make the process so much easier, it's well worth the headache and hassle.





Hopes that help.
 
Irvine, I think whole amount is tied to the big incentive to give ME the incentive to use their lender because they want to close in 20 days. The builder is Lennar and I think they want to close fast for year end and cash flow.



Slamdunk, thanks for your input. They have already given my 75K off price. They told me that's about the limit in terms of price.



So how about this scenario? I close with the lender, keep my fees to a minimum(zero buydown, etc) then refinance? Are there any holes in this strategy?
 
I am confused...



You told Slamduck that they already give you 75K off the price. Does that mean you will get additional incentive on top of that 75K if you use their lender or you have to use their lender in order to get the 75k?



Builder sometimes doesn't like to offer large discounts, so what they do is to offer you to buy down your loan. The most common temporary buydown is called 3-2-1, meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. Those buy down actually costs the builder real money, usually cost up to 30K to 40K depend on the cost of the homes. Those buy downs are usually 3 or 5 year ARMs. Under this type of "incentive", the builder will claim that your incentive is up to 50K (or whatever the amount of cost to them is).



If the builder offer ZERO buy down, just ask you to use their lender, then it is very hard to believe the incentive can be $75K. Again, make sure you understand the contract.



If the builder offer your large buy downs, and hard core refuse to reduce home prices after you threaten this as the deal killer, then I will take the large buy downs if you still want the house. Under this scenario, there is no hurry for you to refi, just ride out the low interet rate period. Make sure you know you can qualify at anytime to refi to a longer term rate.
 
I was going to say ask for a no prepayment penalty so you can turn around and refi. your loans. Just in case you got screwed by the first lender. But like Evalseraphim pointed out. What if your house value drops? These are scary time, my friend.
 
Don't get caught up in the "just ref-fi" in 2 or 3 years after the buy-down. Interest rates are likely to rise to control inflation, people scream because jumbo's hit 7%, I can't imagine it staying at current levels for long. Rates in the 8% to 9% could be realistic in a few years. Heck, when I took out a mortgage in 1999, fixed 30yr jumbo rates were around 7.75%, I think anything over $240K was a jumbo back then.



Whatever you decide, negotiate for a no prepayment penalty.
 
Irvine, I have 75K off price and 75K in incentives to use for buydown, upgrades, rebate at close. Total is 150K, off already reduced prices, which is why I'm close to jumping in. My net is now on average 200k below comps in the neighborhood, so I have little fear of the appraisal coming in below my purchase price. The purchase price is $250/psf, which I think is pretty good.



I also spoke to the mortgage broker. She said there is no prepayment and I can minimize my closing cost and pay net 1800 in closing costs and turn around and refi. My plan is to take the cheapest(in terms of closing cost) loan the builder's lender offers, and turn around and refi in a month or two with penfed.org. Check out their rates. Amazing. 5/5 arm was 5.125 last night with 0 points and 0 closing costs. Anyone looking for a home now should check them out. Here's a link



http://www.penfed.org/productsAndRates/mortgages/firstMortgageLoans55ARM.asp



Thanks to everyone. You've really helped me out tremendously.
 
<p>rtlguru,</p>

<p>Which Lennar community are you buying at?</p>

<p> </p>
 
I was told by one lender that if you refi a new house within the first year they will go off of what you paid for the house rather than going off of a new appraisal. Does anyone know if this is standard policy for all lenders or just for the lender I was talking to?
 
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