The New Construction Shell Game


Filed under: Home Buying Tips


There is a lot of new home construction happening right now, and these houses are beautiful. It’s easy to see why homeowners are choosing to build when there aren’t many options available on the real estate market. But, you need to know what you are getting into before you sign on the bottom line.

New Construction: How It Works

Here’s what you can expect with some of these shell games: You find a home that you love and sign a contract to purchase a home that will be built according to your specifications. Even though you are building a new home, it’s still a good idea to have a real estate agent to ensure that your interests are protected in the transaction.

Almost always, the builder offers a significant incentive to use their preferred lender. It can look like a great deal because it could decrease the purchase price by as much as 1 – 3%. At this point, you are probably 6 months out from closing, which means that the rates probably look good right now. But, you need to consider the details when you are 30 – 45 days out from closing.

This point is where you need to be cautious. The preferred lender could be giving you a highly inflated rate, covering the gap to get enough lender credits to pay the “incentive.” As a result, you end up with a rate that is dramatically higher than you should have received. You won’t save any money, and it might actually cost you more money in the long run. Don’t fall for the shell game!

What are Your Financing Options?

I’ve seen this happen to three different families recently, so the problem is pretty widespread in our area. It doesn’t happen to everyone, but I wanted to share the information so that you can stay informed in case you are planning to buy a new home.

I estimate this is happening probably a third of the time with new home purchases. Instead of assuming you are getting a good deal, your best bet is to complete the application with the preferred lender, then compare those details with the rates and fees offered by other lenders.

I know how confusing it can be if you are in this situation. I’m more than happy to chat with you about the financing options that are available. Call anytime! Also, like, share, and comment so that your friends and family don’t fall victim to this trap.


Franklin Loan Center | NMLS 237653
Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, 4131316
http://www.nmlsconsumeraccess.org/entitydetails.aspx/COMPANY/237653
For questions or concerns please email info@franklinlc.com