my builder wants a letter of commitment from the lender, but property is 9 months to finish?

Question

My builder wants a letter of commitment from the lender for the property, which is more than a pre-approval....But the property is not going to be done for another 9 months...sooo...getting a letter of commitment requires me to get into a long-term commitment (at my cost) with a lender! They only let you lock a rate for 2 months max..otherwise you pay extra. So wtf...what can I do until the time is really needed to get a loan

Answer 1

The builder is looking for a commitment. That means that they have pulled your credit report, taken a FULL loan application and have done some type of review.



The commmitment will list all the conditions of the loan.



Why would a builder want this. The same reason you as a home seller would want this, along with a large deposit - because they want to make sure that you qualify.



What happens if the rates increase in the 9 months? The lender will put you into another program. I'm SURE that this is written in the contract. You are NOT locking into a interest rate. The contract would state, "prevailing rate at the time of settlement". In addition, it will state that you will work with the lender to get a loan.



READ THE CONTRACT. The builder isn't being unfair. They are spending $$$$$ to build the home on a promise and your deposit. They want to KNOW that you qualify.



If you want to lock into the interest rate, I know that lenders are offering up to 1 year "FREE" interest rate locks. You pay a deposit up front, usually one point and when you settle you get the full deposit back. Usually if rates drop, you can float down to the lower rate one time. for free.



In regards to the "mortgage broker" who states that a construction loan is safer: under a construction loan, the buyer actually owns the house under construction. The builder only gets paid for work done. However, the buyer is on the hook for every penny- so if the house is delayed or etc, the buyer pays interest carry every month. NOT A SMART WAY TO GO in this case.



In regards to the lender that says that a loan commitment is like a loan pre-qual and that he just writes them for 'fun'. This type of lender will burn you!!! I promise that the builder will hold you to the contract, no matter what. This type of BS is the reason that builders want you to use their "approved" lenders so that when a letter of commitment is given, EVERYONE (you and the builder) is both protected. Shame on this lender!!

Answer 2

This is extremely common. I would have to say that every home builder will want a commitment from your lender with in 30 days of the contract. They need this as a guarantee saying that ‘yes you can afford this home’. Delaying on getting the commitment to the builder will only delay in the delivery of your home. If the builder does not have Earnest Money and a Commitment - they will most likely not build, especially in this market.

Most lenders will do long term locks for New Construction Homes - you may be working with a broker and it may be harder to do that. I have seen banks hold a lock for up to a year! Maybe you should do some more shopping around on your home loan! I am a huge fan of theirs because I have seen very rare problems, but try Chase!

Answer 3

Why would they will do that. Things change. Everyone needs an out.



What if he's out of $ and can't finish?



Maybe you could go the route of a construction loan where the payments to the builder are advanced in phases. When the work is done on phase 2 he gets paid and can go onto phase 3. At final your loan in converted to a regular home loan. While the work is done you don't have payments. It's worked into the construction loan.



Good Luck

Answer 4

A commitment letter is little more than a pre qualification letter in a different format. It still leaves room for "qualifying" for the loan and thus room for the loan to be denied and for you to get your deposits back. I frequently send out commitment letters for people early in the process- at no cost nor obligation. If your loan officer is trying to tie you down with a money commitment- they are not worth dealing with and should not be trusted. If a loan officer is confident in their abilities and the potential of the loan and fair pricing they should have no trouble giving you a commitment letter.

Answer 5

When I built I was able to get one with out any commitment, I ended using a different bank in the end. It wasn't the builder but the bank that did the construction loan that required it.

Answer 6

lenders are literally not contained in the sources agency, they are contained in the money lending agency. Renting sources is an somewhat diverse agency than lending money and lenders ought to ought to address very a lot of added overheard cost to paintings force up for sources administration and servicing condominium contracts. it really is no longer sensible to ask a lender to incur that cost basically because a renter--with whom the lender not in any respect had any style of relationship--is contained in the living house.

Answer 7

File a letter of intention