Homebuying in America: The lending process “was probably the biggest headache”

When Jessica Lee bought her townhome in Nashville, Tennessee, the builder offered 5% in closing costs if she’d borrow from their preferred lender. The 28-year-old financial analyst felt if she didn’t use the lender, she wouldn’t get the house. “If the builder is offering it, it’d be crazy not to take it,” she says. “But then you kind of shoot yourself in the foot that you have to work with this lending company.”
Setting the scene on homebuying
Two-thirds of builders are offering incentives for buyers right now, including price cuts, rate buydowns and closing cost assistance, the National Association of Realtors reports. And townhomes like Lee’s make up 18% of single-family construction, an increasingly popular option thanks to their affordability and entry to homeownership.
But borrowing from your builder isn’t the only option — which isn’t always clear to buyers. It’s common expert knowledge that buyers who compare multiple quotes end up with lower rates than those who go with the first one they’re presented with. Builder rates can make sense for buyers, but it never hurts to shop around — which can be easier than buyers might realize. For example, the advertised rates offered on Bankrate on a given day are commonly a full percentage point lower than those advertised on major lenders’ own websites.
The plot thickens
Lee spent four years saving up for a down payment while earning close to $100,000, but still felt like putting down 20% would be impossible. That’s when she turned to her family for help.
With a gift from her parents, Lee was able to put down $33,000 on her $350,000 townhome, or 9.4%. She also took advantage of her state’s first-time homebuyer program.
Still, Lee describes the financing process as a big headache. “I don’t think I went a week without crying about it because it was just so confusing and overwhelming,” she admits. The time spent going back and forth about the loan before closing was fraught with anxiety.
“It felt like, at any moment, something could go awry, and I wasn’t going to be able to buy the house,” she says.
Now, Lee says she’d like to refinance when rates drop closer to 4%. And she might be closer than she realizes. In mid-March, advertised refinance rates on Bankrate were as low as 5.75% — almost a full point below March’s 6.7% national average refi rate.
An expert's take
It’s common for real estate agents and builders to guide homebuyers toward their preferred mortgage lender. And sometimes, that relationship works fine. But Jeremy Ray Davis, Southern Bancorp’s president of mortgages, explains it can also limit your options for the pricing and flexibility of your loan.“Consumers should feel empowered to shop lenders the same way they shop homes,” he says. “The right lender works for you. If you don’t feel that clearly, it’s worth a second opinion.”