No, a home builder cannot require you to use a preferred lender. The home builder can offer it’s customers with closing cost incentives and lower interest rates when a preferred lender is used. However, you are not required to use the preferred lender.
There are many reasons to shop around when you are purchasing a new home, right? After all, new homes cost so much in Canada. Similarly, you should also shop around for the best mortgage. A home builder works closely with many vendors and suppliers – and one of those is the lender or financial institution providing the mortgage.
When you work with a lender, you want them to look in your best interest. If you work with the home builder’s preferred lender – there is room for potential conflict of interest.
First, consider if the home builder is being paid for your referral. There are many affiliate and referral programs offered by banks. The home builder may receive a fixed referral fee or a commission based on the mortgage amount you are borrowing.
Do you think this home builder and preferred lender relationship may pose a conflict of interest? It may, says one financial advisor. It’s worse if the home builder and the financing company are both owned under the same umbrella. In these cases, you may see that the builder pays closing costs for buyers.
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Can a Home Builder Force You to Use Their Lender?
No, the home builder cannot force you to use their preferred lender. In fact, they can’t charge you a higher price on the home or levy additional charges because you aren’t using the preferred lender.
However, the home builder can offer you promotions, incentives, discounts and lower rates. In addition, they may offer a quicker pre-approval process. A lender charges closing costs – so you may get a break on those expenses!
Mortgage Pre-Approval For New Construction Home
If you’re receiving a mortgage pre-approval for a new construction home – you need to ask your bank if they are familiar with the development.
The truth is, not every bank and lender remains familiar with all the developments in the city. If the lender is not familiar with the community and it’s development; they’ll usually take a little longer to close. There will be due diligence completed by the lender. The underwriter will need to assess additional things to ensure risk is minimized.
When purchasing a new build home, you need to talk to your mortgage advisor. A mortgage advisor will not charge you for their services. They are bound by many rules – one of those being – they need to work in your favor. A mortgage advisor has access to multiple lenders, at various levels. Depending on your development, financial history and situation – they can recommend a few mortgage lenders.
A mortgage advisor may not guarantee approval – but they can definitely work in your best interest. The mortgage underwriter will need to confirm that you have home insurance for your home. There are thousands of people who’ve got their homes insured by Square One Insurance.
In this business, it is very common for a realtor or home builder to recommend a lender – but the final decision is in your hands.
Builder Owned Mortgage Companies
Yes, builders can own mortgage companies that provide lending to finance new construction homes. There are home builders that are affiliated with lending companies. As a home buyer, you need to be educated on the home builder and lender relationship.
There are several dozen lending options available to you. You are not obligated to use the builder’s preferred lender. In fact, it is highly recommended that home buyers shop around for lending. It is in best interest to look around for the best mortgage.
Always remember, when you start paying for a new construction home.
When Should I Use the Builder’s Lender?
In some cases, using the builder’s preferred lender is the best option. If the new development is in a new area or the building is yet to be excavated – you might have to use the preferred lender.
Lender’s can require that a certain percentage of units be sold in a condominium before any funds are lent. The bank you’ve been going to for years may not agree to lend on a new development they nothing about. If there is no building in place – they are definitely not going to lend any funds.
In this case, you may need to work with the preferred lender. This lender has already discussed with your builder on the specifics of the project. The preferred lender is now confident in the project and will provide buyers with financing.
However, it is always advised to have a lawyer on your side who will follow the transaction and read the particulars involved.
Always remember that you are the customer. You have several options available to you.
In general, home builders can seem like they want you to use their lender – but they know that you can go elsewhere. Yes, sometimes the builder pays closing costs – but always weigh both sides of the equation. The builder alone will not absorb the costs of closing because the lender covers some of the costs.
Builder Pays Rent in Canada?
We haven’t seen any incentives where the builder pays your rent while you build your home in Canada. However, these incentives can be very enticing for some home buyers. There are some benefits to having your builder pay your rent while you build:
- You can save your rent money over the course of the build
- Increased cash flow for new construction home upgrades
- Less financial stress while building your new home
- You can invest your increased cashflow in a TFSA
In other countries that offer “we’ll pay your rent” incentives – there are limits to how much of your rent they will cover. In a city like Toronto, where rents can vary from $850 for a room to $3000 for a home – the builder will definitely set a limit. Regardless, if Ontario home buyers can get a break on rent while building their home – it’d be a great promoter for any home builder.
