Builder Incentives “Required Use” Rule Change Delayed

New “required use” rule would prevent home builders from offering incentives or discounts to buyers that use the builder’s designated lenders.

Home builders have been providing “incentives” for homebuyers for a long time now, with buyers typically getting allowances for rate buy-downs, flooring and other upgrades as part of their new home purchase package, as long as the buyers use the builder’s designated in-house lender. These incentives are not always small change, with some amounting to $30,000 or more, especially for move-in-ready (or inventory) homes.

The new Real Estate Settlement and Procedures Act (RESPA) “required use” ruling would prevent builders for offering these incentives if they are tied to the buyer’s use of specific service providers. The effective date of the ruling from RESPA regarding the “required use” of certain lenders and other service providers in order to obtain buyer incentives for rate buy-downs and upgrades has been delayed for 90 days, with a new effective date of April 16, 2009.

The National Association of Home Builders (NAHB) has filed a lawsuit regarding this rule change, which resulted in the 90-day delay, and will be using the extra time to get their “legal ducks in a row” to dispute the ruling. The RESPA states that it has always been against the law for a settlement services provider to require the use of its affiliates, and the recent ruling expands this definition to include builders. The builders contend that they are not settlement service providers, and thus the new rule should not apply to them.

HUD spokesman Brian Sullivan says, “We were getting complaints from consumers who, after they got their house and their new granite counter tops or their new framed-in sun room – or whatever the incentive was – and they started to do the arithmetic saw that the loan they were put in was appreciatively more expensive than they could otherwise qualify for and so it wasn’t a true discount.”

The bottom line with these incentive programs is that you need to do some comparison shopping, just like you would do for any large purchase, whether it’s a car, a tv or a new home loan. If the builder’s lender offers rates and fees that cost you more than the incentives you’re getting from the builder, then get your loan elsewhere! You’ll need to do the math here… if you have a qualified Realtor helping you out with your new-home purchase, she can help you figure out what works best for your needs.

Builder incentives and their tie-ins to the builder’s in-house lenders are part of the minefield that homebuyers will need to navigate as part of the new home buying process. If you’re looking to buy new construction, be sure to bring a qualified Realtor with you to your very first visit to any new home development. This first-visit rule is strictly enforced by most builders, so if you don’t have your Realtor in tow on your very first visit, then you’re on your own to get the best deal and to make sure that the builder isn’t taking advantage of you. Remember that the nice saleslady who greets you in the sales office has only one job and one responsibility: To sell homes for the builder. You, the buyer, are not her client nor her responsibility.

Santa Clarita Realtor Linda Slocum specializes in new home sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com