Builder incentive vs. outside Loan Estimate comparator

01Problem

Production builders condition closing-cost credits and teaser rates on their affiliated lender, and most financed buyers stay captive (Lennar Mortgage 84% of financed buyers in FY2025; DHI Mortgage 81% of Horton closings; Pulte Mortgage 84.7% capture excluding cash; KBHS 85% of financed buyers). Census/HUD CB26-174 (Oct. 27, 2026) put the September 2026 median new-house price at $400,400. A $10,000 credit on a 7.24% note can lose to a $10,000 price cut or a true outside Loan Estimate once APR, Section A, lock length, and the Fannie/FHA contribution cap sit on the same grid.

02Intake

Unsigned purchase agreement, lot-premium sheet, spec/option sheet, incentive flyer, and the sentence that ties incentives to the affiliated lender.
Appendix D AfBA disclosure plus the captive’s name (Lennar Mortgage, LLC; DHI Mortgage; Pulte Mortgage LLC; KBHS Home Loans; Toll Brothers Mortgage Company).
Target product (30-year fixed vs 5/1 ARM; conventional vs FHA/VA/USDA), occupancy, down-payment percent, FICO, intended close vs estimated completion.
Official Loan Estimates (all pages) from the captive and two outside lenders, same week, same six items, same lock status.
Design-center invoice and builder-paid buydown agreement (temporary 2-1 / 3-2-1 vs permanent points).
Rate-lock letter: expiration datetime, extension fee, float-down, and whether a standby/forward (Fannie SFC 887) is in the file.

03Playbook

01
Get the Appendix D AfBA form before the incentive deadline. 12 CFR 1024.15 / 12 U.S.C. § 2607(c)(4) let a builder own a lender. Safe harbor: Appendix D on a separate paper at or before the referral, ownership, charge or range of charges, and “YOU ARE FREE TO SHOP AROUND.”
02
Trigger official Loan Estimates, not worksheets. Six items (name, income, SSN, property address, estimate of value, loan amount sought — 12 CFR 1026.2(a)(3)(ii)) start a 3-business-day LE clock (1026.19(e)(1)(iii)(A)). Creditor shall not require a purchase contract as a condition of the LE (1026.19(e)(2)(iii)). Pay only a bona fide credit-report fee before intent to proceed.
03
Cluster three LEs inside 14 days. Same six items to the captive and two independents the same day. Compare Rate Lock + expiration, note rate, Section A, Section J credits, B vs C, MI/MIP, Cash to Close, APR, TIP, In 5 Years.
04
Classify the flyer. (a) Closing-cost credit. (b) Temporary 2-1 / 1-0 / 3-2-1 (note rate stays high). (c) Permanent points that cut the note rate. (d) Standby/forward the builder bought before your contract (Fannie SFC 887). A 5/1 ARM teaser is none of those: the payment rate is not the APR.
05
Run the RESPA “required use” test. 12 CFR 1024.2: optional package, true discount below prices otherwise generally available, not recouped elsewhere. A lot-premium bump, compressed lock, or higher Section A fee that recoups the credit fails the “true discount” half.
06
Compute the IPC cap. Fannie B3-4.1-02 (05/07/2025): of the lower of price or value — 3% at LTV >90%; 6% at 75.01–90%; 9% at ≤75%; investment 2%. Affiliated-lender buydowns count. FHA 4000.1: 6% of sales price, including buydowns, prepaid interest, MIP, UFMIP; IPCs cannot fund the 3.5% minimum investment. Excess Fannie concessions cut the LTV sale price.
07
Convert a 2-1 to cash subsidy. Fannie B2-1.4-04: qualify at the note rate; initial cut ≤3 points; step-up ≤1 point/year; ≤3 years. Subsidy = note-rate P&I minus bought-down P&I, deposited at closing. Servicers must send a 90-day step-up notice (mandatory Nov. 1, 2025).
08
Convert a permanent buydown to a break-even. One point = 1% of loan amount, connected to a discounted rate (12 CFR 1026.37(f)(1)(i)). A “point” that does not cut that lender’s same-day 0-point note rate is an origination fee. Break-even months = points ÷ monthly P&I savings. A 0.25% cut per point is a market rule of thumb, not a CFPB number (Ask CFPB en-136).
09
Convert a price cut, then score five-year cost. A $10,000 price cut at 5% down cuts the loan $9,500 and 30 years of interest (and FHA UFMIP). Prefer a price cut when cash-to-close is fine and IPC is tight; prefer a credit when cash is the constraint. Five-year cost = cash to close + 60 × P&I (step-up schedule on a 2-1) + MIP/PMI + remaining principal. After month 24 on a 2-1, the note-rate payment is the payment.
10
Match lock length to the build. CFPB en-143: locks typically 30, 45, or 60 days. The LE Rate Lock line (1026.37(a)(13)) omits the extension fee. A six-month build needs a written lock through CO, construction-to-perm, or float-down. Get the 90- and 180-day price in writing.
11
Decode ARM teasers with the APR. Lennar Tulsa promo (fetched Oct. 30, 2026): FHA 5/1 ARM 4.50% (7.672% APR) + up to $10,000 closing costs, sign 10/27/26–11/01/26, close by 11/30/26, “Offers require financing through Lennar Mortgage, LLC.” Sample $205,000, 3.5% down. Eagle Home Mortgage is the former name (rename December 2020); the 10-K and promo use Lennar Mortgage, LLC.
12
Shop title; decouple the credit; decide. 12 U.S.C. § 2608 (RESPA § 9): seller may not require a particular title company — treble the title charges. Write: “Seller credit of $[X] toward Buyer’s closing costs, independent of lender” (negotiation, not a RESPA right). NAHB HMI Aug. 17, 2026: 35% of builders cut prices (avg 6%); 63% used incentives. Choose the captive when AfBA is in the file, outside LEs lose on five-year cost after IPC, and the lock covers CO. Walk if the house is not for sale without the affiliate — that is required use.

04Checklists