Preferred Lender-Based Incentives May Come To An End

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January 12, 2009 - Chicago real estate developers may have a limited time left to offer buyers incentives if their preferred mortgage lender is used. A new law that was set to go into effect on January 16th of this year would prohibit home builders from dangling discounts, upgrades or other incentives to buyers if they use the developer’s affiliated mortgage company. The effective date of the law, part of the Real Estate Settlement Procedures Act, has since been pushed back to April 16th, in part do to a suit filed by the National Association of Home Builders(NAHB) against the Department of Housing and Urban Development(HUD).

Basically HUD contends that developers were recouping the money they spent on offering buyers monetary incentives, free parking, free upgrades or other incentives by increasing closing costs, raising the interest rate on the loan or even raising the base cost of the condo or home. HUD has no problem with developers offering what they term “true” incentives that are available to anyone regardless of whether or not they use the preferred lender.

William Killmer, VP of NAHB’s advocacy group was quoted in an Inman News article as saying that the new rule change, “could not have come at a worse time,” and that it will “greatly obstruct NAHB’s members from stimulating consumer demand and moving excess supply.”

With the slumping housing market, many developers have been using a combination of incentives to try to entice buyers into purchasing Chicago condos. One example that comes to mind is R+D659 where you can get a 1.5% below market rate lock on a loan if you use the preferred lender.

It will be interesting to see if when the new ruling goes into effect it will decrease the number of incentives for buyers or make them more readily accessible no matter where you get your financing. Until then, if you’re interested in one of the Downtown Chicago Condos offering incentives that fit into that category, you may want to make a move before April.

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