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?

June 01, 2002

 

Stan Ehrlich

 

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 [email protected].

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