closing cost and builder incentives

[Anonymous]

I recently signed contract to have my first home built. I was sold on the idea of using the builders lender to get my closing cost paid for, I had to get the pre approval through them before signing contract with the builder (in which I did) after signing contract and getting the GFE i realized ,in which was not pointed out that they only cover 3% of closing cost, this was noted because on the GFE there was a signifiant amount of closing cost still coming out of my pocket. after confronting the builder and the lender we were assured that the fees were being padded and that we would not be coming in with anymore then our down payment. I updated my credit with a higher score since pre approval thanks to the fine folks on these forums, so at that time I asked for an updated estimate and rate estimate. The estimate this time actually came back with even higher  closing cost. I have several emails that state we wont be paying more out of pocket then our down. my question is how can I make sure that is the truth? I should be able to lock in a rate this coming week. I know I can try a different lender that may be cheaper but they have me on the hook with the 3%. any advice would be great.

[JM-AM]

Closing cost usually are about 3% of the loan. YMMV obviously according to lender. Since you have numerous emails and confirmation from them they are padded cost I wouldn't let it concern me to much. But in the case of can't always be to sure and do not want to have a hiccup at the last minute write up your own agreement stating that the closing cost will not exceed 3% and the builder is responsible for all closing cost. Use the best wording you can and have them sign it off. 

[Anonymous]

I have always heard that this type of loan is a litte more difficult to get because thier is obviously no standing equity becasue the house isn't built yet, is this true?  I want to move to Vegas/Henderson in about 10 years but I want to take advantage of the cheap land right now, just curious in the future about building a house from the ground up on the loans? 

[StartingOver10]

Actually, builders are known to push what would normally be paid by the seller over to the buyers closing cost.  Read your contract carefully. Review it with the GFE. Are there seller's closing costs on your side of the GFE? Do any of the credits show?  If I were in your shoes I would ask the builders lender to show you a recent signed HUD of a similar home for the builder so you can compare each cost line item by line item. They can redact the name and address for privacy. I bet you will see additional costs on the buyers' side that are normally paid by the seller.

The other thing you can do is take your contract and current GFE to another lender. Don't provide the GFE, just have them work up one of their own and compare the two. Make sure the new lender knows how to read and contract and prepare a proper GFE (not all of them do, some just make assumptions that it is a 'regular deal').

Once you determine the actual costs, then prepare an addendum to make sure the builder pays those costs. If the builder says you only have to come in with the down payment, then the contract needs to reflect what the builder is saying. Good luck.