I’m building a new home and was offered a rate buy down as an incentive. I (and others who chose this) thought the rate buy down would happen closer to closing. We were hoping rates would drop by then. I signed a contract to build the house, but nothing was ever signed about the rate buy down. All of the communication was verbal or through texts, and now I see how unclear it was.
Our builder took a batch of contracts to the bank months ago and didn’t tell us they locked in a rate or what that rate was. Now, months later, we’re seeing much higher rates than we expected on the loan applications with their preferred lender. What are my options here? It doesn’t even feel like an incentive anymore, and I would have picked something else if they’d explained this better. Can they lock a rate without telling us the rate or when it was locked? Can we switch to a different lender?
You can definitely use another lender. Read your contract to see what’s written about the incentives. Builders usually offer perks if you use their lender, but you’re not forced to. You might lose the incentives, but you could get a better deal with a different lender.
Also, no, written consent isn’t always necessary. We often lock rates over the phone with clients without needing their signature, but it’s all about trust and communication. Sounds like your builder’s team wasn’t very open with you.
Grayden said: @Zion
But they still need to get your approval, right? Even if it’s over the phone, don’t they need to discuss it with you?
Yes, we always tell our clients what the rate is that day and ask if they want to lock it or float it. It’s up to them to decide. Some people are unhappy if rates drop after locking, but they’re happy if rates go up after locking.
Grayden said: @Zion
I’ve also heard lenders say they can float the rate down if it drops. How does that work?
Every company has different rules. For us, we allow a one-time free float down if rates drop by .5%, but it has to be done at least 4-5 days before closing. Brokers usually can’t float down without finding a new lender and starting the process over.
Grayden said: @Zion
I get it. Thanks for explaining. I thought lenders would always want to keep the business, but I guess it’s more complex than that.
It’s because when a lender locks a rate, they’re putting money down to secure that rate. If they don’t follow through, it’s like breaking a contract. It affects everything down the line.
There’s a lot going on here, and we’re missing some context.
First, yes, you can always go with another lender. What does your contract say about the buy down? Is it permanent or temporary? Usually, you have to use the builder’s lender to get the buy down, but you’ll lose that incentive if you switch lenders.
Second, what state are you in? Some states require written agreements for rate locks, but others allow verbal agreements.
Third, your builder doesn’t lock the rate with the lender. Rate locks are agreements between you and the lender. Have you spoken with the loan officer? You might be able to renegotiate the lock. Builder-preferred lenders don’t always offer the best rates. Rates have been higher recently, too.
You need to get in touch with your lender and figure out exactly how your rate got locked. Given that your closing is still months away, this sounds like an extended rate lock, which often comes with a float-down option (though these locks are usually higher).
@Gale
Thanks for your insight. My contract doesn’t mention anything about the buy down, which probably explains why we got such a vague explanation. No one told us we had to use the preferred lender either. We’re in Utah. We agreed to the buy down via text, but nothing about locking a mortgage rate.
@Nico
Sorry you’re dealing with this. It sounds like a bit of a mess. Are you seeing the buy down reflected in the loan disclosures? Does it show a credit from the builder?
Utah allows verbal or written rate locks, but I haven’t personally worked in Utah.
It sounds like you should push your lender to renegotiate the rate lock. The lender is supposed to work for you, not the builder.
@Gale
Good question. I just checked, and I don’t see anything about the buy down in my disclosures. It says my rate is floating and not locked, even though the loan officer told me it was locked verbally.
@Nico
Do you have your loan estimate? Look at the top right corner of the first page. There should be a line that says ‘RATE LOCK:’ with a checkbox for YES or NO. Is it locked or not?
Oak said:
Are you required to use their lender? If not, I’d suggest shopping around for better rates.
You can use any lender you want, but often the builder’s lender gives you much cheaper rates. DR Horton, for example, is still locking people at 5% interest rates.
Freddie said:
I don’t get this. Isn’t the builder’s financing separate from your own? Once the home’s built, you should be able to get your own loan, right?
That’s what I thought too. It feels like this is the builder’s deal with the bank, not mine.
@Nico
I work in the industry. Usually, there’s a marketing agreement between the builder and lender. The builder offers discounts if you use their lender. The builder cannot lock your rate without you agreeing with the bank. If you didn’t agree to a lock, tell the lender. Also, if you find a better rate elsewhere, take it back to the original lender. They might try to match it to keep your business and give you the incentives.