Asked by mitzie  |  Submitted May 11, 2015

If a home builder is willing to offer you incentives to go with their lending company, can you take advantage of refinancing afterwards?

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  Answers  |  2

May 12, 2015

Mitzie, the answer is of course you can...provided the numbers make sense and you can recoup the cost of refinancing in 2 years or less. The main reason a builder would steer you towards a specific lending company is time value of money.

It isn't uncommon for a builder to have an affiliate agreement with a lender as a reason to align with them, but more often than not, it is the lender's success or track record where their pre-approval process and pull through ratios are concerned; The better ratios guarantees less of the buyers will fall out, having the forward commitments looks better for the builder on his balance sheet and the inventory will move faster positively affecting his cash flow.

So, depending on the loan to value (LTV) you purchase the home for, it rarely makes sense to refinance unless some time has passed and/or the value of the home has increased dramatically or the rate that you are refinancing to is 150 basis points less than the original rate. These are just some basic guidelines but you will always want to see what's available - case by case, so to speak.

$commenter.renderDisplayableName() | 09.25.20 @ 00:28


June 01, 2016

Absolutely, Mitzie, provided you live in a state without high refinancing/tax costs and you have adequate equity. Ask the builders' lenders about refinancing, and they'll likely say "we can refinance you once you've made 6 (or whatever) number of payments!" Truth be told, there are no prepayment penalties, so savvy borrowers often grab the builder incentives, and perhaps a hefty seller contribution towards closing costs, despite a builder's high rate, then refinance a couple of months later. Anyone who tells you "you can't refinance that loan for 6 months or you'll have a prepayment penalty" is either mistaken or lying.

$commenter.renderDisplayableName() | 09.25.20 @ 00:28