Knew there’s a Federal Housing Commissioner there? Not me either. Nonetheless, he’s inside the beltway, supposedly trying to align the housing market’s needs with the choices open to consumers would-be home buyers. Commissioner Brian Montgomery recently had this piece of advice about first-time home buyer opportunities when a developer dangles glittery deals in front of you trying to entice a home purchase, you can still say no. And then, you don’t walk away from an especially good deal. Click Fair Cash Deal-We Buy Houses.
Given the flattening of recent home selling rates, the inventory of unsold homes has soared to a point not seen in nearly 15 years. Developers who borrowed to build their new homes cannot afford to retain inventory, and many have turned to some very glamorous offers. These include new kitchens, vehicles and a range of financial benefits including making the first six mortgage payments. Those are also first-time home buyer rewards, intended to draw in people who are less able to quantify the actual costs. The kicker for most of the financial benefits-such as reduced cost of closing-is that you are forced to use the mortgage provider of the owner.
Commissioner Montgomery comments, “These (first-time home buyer incentives) buyers frequently feel pressured to choose a builder’s hand-picked mortgage company because they believe they have been given an opportunity that they cannot decline.” But federal property settlement laws “allow these incentives to be valid and not integrated into the house price or the loan cost.”
Controlling the mortgage terms allows the lender the opportunity to recover the costs of such benefits by incorporating them into the loan. Recent home sale rates don’t automatically serve as a disincentive to an eager buyer closing in on a purchase. Too often, if the prospective buyer looks for other financing, the builders will threaten to withdraw the rewards offered. The statement by the Commissioner was prompted by customer reports who felt forced to support this in-house funding, even if there is a better loan available elsewhere.
One-way developers have this persuasive power is by taking $10,000 or more deposits on the home while specifics are being worked out. A customer who wants to pursue external funding may be in danger of losing the deposit regardless of what the escrow legislation says regarding initial deposits.