5 Pros of Using Your Builder’s Preferred Lender – and 3 Reasons Not To

When you're buying a new construction home, you’ll likely hear about your builder’s “preferred lender” and maybe even be offered perks for working with them.

But is it the right move for you?

What is a Preferred Lender?

Preferred lenders are mortgage providers that are partnered up with a residential builder. They could be banks, credit unions, online lenders, or an in-house branch of the builder’s wider company.

Builders often refer their clients to a shortlist of these partner lenders – and that partnership often comes with tempting incentives for you, the buyer, such as upgrades, loan flexibility, and more.

You don’t have to use a builder’s preferred lender. While your builder may require you to get pre-approved from their preferred lender to make sure your financial situation checks out, it’s illegal for builders to require you to use their lender for your mortgage.

Pros of Using Builder’s Preferred Lender

1. Financial Incentives

Monetary perks most often come in the form of thousands of dollars that go toward your closing costs or a free upgrade package on some of your amenities.

It’s an enticing upfront offer during a very expensive process.

2. A Faster, Smoother Process

Builders and their preferred lenders have built trust, familiarity and history – the lender knows the ins and outs of the builder’s timelines, documentation needs, and typical delays, and they’re often better-equipped to keep your mortgage and move-in on track.

3. Better Communication

Since the builder and the lender are used to working together, communication tends to be tighter. Things such as appraisal updates or missing documents can often be handled quickly without you needing to play the go-between.

4. Higher Approval Odds

Preferred lenders may work with a wider range of buyers, especially those with less conventional credit or income. Even traditional borrowers may get faster approvals.

5. Loan Flexibility

Preferred lenders will be more cooperative with your builder in the face of building delays and other hiccups. If your closing date shifts (and it might), preferred lenders may offer longer rate-lock periods or more leeway on appraisals and documentation. Appraisal checkpoints may be more routine than full-on scrutinizing of the builders’ work.

Cons of Using a Builder’s Preferred Lender

While it shouldn’t be an issue, be sure to watch out for the fine print when it comes to working with preferred lenders. Ultimately, it’s about being a sensible, savvy consumer who’s adding up the benefits and drawbacks to get a full picture of the loan product.

1. Higher Interest Rates or Fees

Those upfront perks might come with higher interest rates or fees that cost more over time. Run the numbers: A slightly higher rate could mean tens of thousands more across the life of your loan — much more than a few thousand dollars upfront at closing.

Do the math: The average mortgage rate hovers around 6.5% in 2025 – if these preferred lenders can help you secure a competitive rate with kickbacks like closing cost assistance, they may be worth your while.

2. Limited Loan Options

Preferred lenders may offer a narrower selection of loan products, which may be limiting if you’re looking for specific loan types, such as VA loans, first-time buyer programs, or options for buyers with smaller down payments. If you need something specific, ask — or shop elsewhere.

3. Feeling Pressured to Say Yes

You might feel pushed toward a preferred lender, especially if your builder is pressing incentives and promises of a smoother loans process on you.

Just remember, you’re under no obligation to use their lender.

How to Decide Whether to Use Builder’s Preferred Lender

Take these four steps to decide whether your builder’s preferred lender is right for you:

1. Shop around. Get pre-approval quotes from two or three other lenders and compare interest rates, total closing costs, loan terms, and any upfront fees and long-term fees.

2. Look at the full cost. Don’t just look at the incentives in isolation. Compare the total cost of the loan over five years, 10 years, and the full term.

3. Negotiate. Sometimes you can use a better offer from an outside lender as leverage to get the preferred lender to match or beat it.

4. Decide what matters. Take stock of what’s important to you. Is it a smooth homebuying process? If so, the preferred lender may be the most seamless journey to closing. But if they don’t offer a loan product you need or their interest rates just aren’t competitive, you may decide on another route forward.

The Bottom Line

Do your homework, compare offers, and remember: you have the final say in who finances your home.

In the end, the best choice is the one that saves you the most money and provides the best service — whether that’s the builder’s lender or not.