Home Builders Incentives Rules Change

– Posted in: Phoenix Real Estate

If you are in the market for a new build home a new HUD ruling that became effective January 16, 2009 will likely have an impact on your transaction.

Under the new HUD Final RESPA ruling  “ALL” builders that have an “Affiliated Lender Relationship” (partial or full ownership interest) will no longer be allowed to exclusively entice or offer incentives to  their buyers to use their affiliated lender relationship. Under the new HUD Final RESPA ruling on “Required Use of Affiliates” the Definition of “Required Use” has been amended.  This ruling also requires the revision of the “Good Faith Estimate” form and revision of the HUD-1 Settlement Statement form to follow.

What this means is that builders who have an in-house mortgage company, or joint venture with a mortgage company, must now offer the buyer the same incentives regardless of who the buyer decides to use as their mortgage lender.  If the builder is offering to pay closing costs and, or upgrades, they must now offer those same incentives to any buyer — regardless of where the buyer goes to secure their mortgage.

When this situation was being reviewed by HUD it was felt that the offering of incentives that was tied to use of a builder’s lender often led to the discounts that were offered to buyers being made up in more expensive costs elsewhere.

Effective on contracts written after January 16, 2009, the builder can no longer use those incentives as an exclusive enticement if the buyer only uses the builder’s in-house or affiliated lender relationship. This new ruling affects all builders.