When buying a property from a developer or builder, particularly in a large development of some sort or a production home situation, they’ll typically have their own in-house lender.  They do this for a couple of reasons: of course they make money on the loans and it’s nice to add a few more thousand dollars profit to each and every transaction that crosses their desk.  They also do it to control the lending process and the close date.  It is true that when other lenders are used, all of the elements of the process that need to be carefully coordinated are not always successfully done so.  Close dates are missed.  Monthly and quarterly revenue targets are missed… ho hum. 

They will give you several reasons and scare tactics as to why their in-house lender is the way to go.  They’ll assess late fees to you, the customer, if you use another lender and someone screws up and your loan doesn’t fund on the magical date they’ve put in the calendar.  Any number of people or pieces of paper could suffer one imperfection, and you have to pay for it.  Been there, done that.  The builder wants you to use their lender so badly that they’ll offer great incentives to do so.  Closing costs?  Covered.  Discount?  How about $60,000 off the price of the home?  They really make it so you’d be crazy not to use their lender.

But is there a catch? 

To the average consumer, no.  To smart investors, sometimes.  I’ve heard the song and dance so many times my head spins:

“We have access to thousands of different loan programs.  We can offer the same programs your mortgage broker can offer you.  There is nothing that your broker can do that we cannot.  We all have access to all the same lenders.” 

The operative word here is ACCESS.  And HAVE.  I’m starting to feel like Bill Clinton when he said it depends what the meaning of the word “is” is.  Seriously - all of these mortgage brokers do effectively HAVE ACCESS to the same lenders, but DO they ACCESS the lenders?  Or do they have their few favorite pieces of low hanging fruit that they go back to again and again because nobody asks them to reach further?

A lot of home buyers are so excited about the new house, and so cooperative with the loan process, they are just biting their nails hoping they will qualify.  They just listen to what their friendly in-house mortgage broker tells them, give what they’re asked for, and the process moves along just like the broker would like it to.  He works his 8 hours for the day and gets his lunch break at noon, right on schedule.

Until the evil investor comes along!  Investors ask for tricky things, like no prepayment penalties, and stated income loans, and pay option arms.  These are not low hanging fruit.  You have to get out your ladder for these.  But they are not difficult and they do exist in abundance.  Any in-house lender that says that you cannot put 5% down, stated income, with no prepays, is just not looking hard enough.  Anyone that says you cannot put 10% down, non-owner occupied, stated income, no PMI, and get into a pay option arm, is just not looking hard enough.  Some of these in-house lenders will even let it slip in the midst of their frustration that the real reason it’s not available is because they don’t have the time to find it.  They “haven’t done one in a while.”  They’re too busy.  “I have 100 loans on my desk that need to close this month.”  Waah, waah, waah.

In this situation, unfortunately, if you want to save yourself the closing costs and get the great incentives, you have to play ball.  You have to use the in-house lender.  You also have to know as much, and in some cases more, than the in-house lender does about what loans you can qualify for and what loan you want.  You need a good understanding of the current loan programs or have someone in your circle of friends and team members that does.  These in-house lenders will swear that what you’re asking for is unrealistic, but you just need to stick it out.  Get their boss involved.  Go to the people who are getting paid when your loan closes.  And above all, remember that you are the customer. 

This may turn out to be one of those times in your real estate investing career where you need to check yourself and ask “how badly do I want financial freedom?”  You want it more than anyone else, and at times this is very apparent.  Your freedom is yours.  You need to want it and you need to fight for it.  You can give up and give in to these silly lenders, or you can persevere.  When you press on, reaching your goal becomes that much sweeter.