Should you use the builder's lender?

You are standing in a model home in Prosper and the sales agent says the builder will put $15,000 toward your closing costs — if you use their lender.

The two reflexive answers are both wrong. It is not a trick, and it is not free money. It is a trade, and it is one you can actually do the arithmetic on before you decide.

I will say the unhelpful-to-me part first: more often than not, taking it is the right call. I would rather write your loan. The numbers still say what they say.

Is it even allowed?

Yes, and it is worth understanding why, because the rule tells you what to check.

RESPA prohibits a builder from requiring you to use an affiliated lender. Regulation X defines "required use" as a situation where you must use a particular provider to get access to some distinct service or property. Conditioning the house itself on the lender would be that.

But offering a discount tied to using them is explicitly carved out — provided two conditions hold:

Any package or discount must be optional to the purchaser.

The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.

Read that second sentence again, because it is the whole guide. The regulation itself anticipates the obvious dodge: giving you $15,000 with one hand and taking it back in the rate with the other. Checking whether that is happening is not cynicism. It is the exact question the rule was written around.

You will also receive an Affiliated Business Arrangement disclosure at or before the referral, explaining the ownership relationship and telling you that you are not required to use them. It is a real document with a real meaning, not boilerplate to initial past.

The wider rule behind all of this — who may pay whom in a mortgage, and what is actually illegal — is in nobody can be paid to send you to me.

The arithmetic

Take an ordinary Prosper file: $600,000, 10% down, 30 years.

The builder's lender offers 6.99% with a $15,000 credit. An outside lender offers 6.50% with nothing.

The higher rate costs you $176 a month. The credit is worth $15,000. So the credit covers the difference for about 85 months — just over seven years.

Held to full term, the rate difference is about $63,300 in extra interest — but almost nobody holds a mortgage for thirty years. The median is closer to seven, and in a corridor where people move up as families grow, often shorter.

Which is why the honest answer is usually take the money. The incentive is certain and immediate; the rate penalty is spread thin and frequently ended early by a move or a refinance.

When it stops being the right call

You are genuinely staying. If this is the house you raise children in and you have no intention of refinancing, the arithmetic flips somewhere around year seven and keeps going.

The rate gap is wider than half a point. At a full point the break-even collapses. Run your own numbers in the payment calculator — the same two rates, the same loan, and see where the credit runs out.

The credit is being made up elsewhere. This is the condition the regulation names, and the one people forget to check. A $15,000 credit that arrives alongside $6,000 of origination and processing fees you would not otherwise pay is a $9,000 credit.

Your file is not straightforward. A builder's affiliated lender is generally set up to do the ordinary version of a loan efficiently. If you are self-employed through your own consultancy, newer to the country, or documenting income that needs reading rather than scanning, the relevant question stops being price. A cheaper loan you do not get approved for is not cheaper.

How to compare them properly

Get a Loan Estimate from both, on the same day. It is a standardised form, and every section of it is explained here. Page 2 is where the real comparison lives, not the rate on page 1. Rates move daily, so quotes from different weeks are not comparable.

Compare the total, not the headline. Rate, lender fees, points, and the credit — all four, together. Any one of them alone can be made to look good.

Ask what the credit is contingent on. Some are tied to using the affiliated title company too. That is a separate decision with its own disclosure.

Check whether the incentive is cash or a buydown. Increasingly the credit is delivered as a temporary rate buydown rather than closing costs. That is not worse — but it changes the maths entirely, because the benefit lands in the first year or two instead of at the table. How a buydown actually works covers what that means for the payment in year three.

Then tell each of them what the other said. This is normal, expected, and the single highest-value ten minutes in the process. A builder's lender that will not sharpen its pencil against a real competing Loan Estimate has told you something useful.

The thing worth remembering

You are never required to use them. The incentive is lawful, it is often genuinely worth taking, and you can hold both facts at once.

What you should not do is decide it in the sales office, on the day, on the strength of a number quoted verbally. Get both estimates, put them side by side, and the answer is usually obvious within five minutes.

If you want a second set of eyes on the two, send them to me. I will tell you honestly if the builder's deal is the better one — it frequently is, and you are better served by a straight answer than by me winning an argument.

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Figures use a $600,000 purchase, 10% down, 30 years, comparing 6.99% with a $15,000 credit against 6.50% with none. Illustrative, not a quote — your rate depends on your credit, your down payment and the property. Incentive structures vary by builder and change often.

Sources: Regulation X, 12 CFR § 1024.2 — definition of required use · 12 CFR § 1024.15 — affiliated business arrangements