Enforceability Status
Texas generally permits builders to offer incentives conditioned on using a preferred lender, provided the arrangement complies with the federal Real Estate Settlement Procedures Act (RESPA) affiliated business arrangement disclosure requirements. Texas does not impose additional state-level restrictions beyond federal law on preferred lender arrangements in new construction contracts.
Legal Analysis
Under federal law, the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. Section 2607, prohibits kickbacks and unearned fees in connection with real estate settlement services. However, RESPA Section 2607(c)(4) expressly permits affiliated business arrangements provided that the referring party discloses the affiliation to the buyer, the buyer is not required to use the affiliated provider, and the affiliated provider does not pay the referring party anything other than a return on ownership interest.
Texas does not have a state statute that prohibits builders from conditioning incentives such as closing cost credits or design upgrades on the buyer's use of a builder-affiliated or preferred lender. The Texas Finance Code regulates mortgage lending but does not specifically address preferred lender arrangements in new construction purchase agreements.
The Texas Department of Savings and Mortgage Lending oversees mortgage licensing and compliance but has not issued guidance restricting builder preferred lender incentive programs. As a practical matter, builders in Texas commonly offer financial incentives ranging from closing cost contributions to interest rate buydowns that are contingent on the buyer financing through the builder's preferred lender.
Buyers should be aware that while they cannot be compelled to use a preferred lender, declining to do so may result in the loss of substantial financial incentives. RESPA requires that the builder provide a written affiliated business arrangement disclosure if the preferred lender is affiliated with the builder, and the buyer must be informed that participation is voluntary.
Relevant Texas Law
Prohibits kickbacks and unearned fees in real estate settlements but permits affiliated business arrangements with proper disclosure under Section 2607(c)(4).
Implements RESPA requirements including affiliated business arrangement disclosures and prohibitions on required use of affiliated providers.
Governs mortgage lending in Texas, including licensing requirements for mortgage companies and loan originators.
Builders in Texas Using This Clause
What Texas Buyers Should Know
- Compare total loan costs independently Obtain a Loan Estimate from the builder's preferred lender and at least one independent lender. Compare interest rates, origination fees, and total closing costs to determine whether the builder's incentive offsets any cost differences.
- Request the affiliated business arrangement disclosure If the builder's preferred lender is affiliated with the builder, federal law requires a written disclosure. Ask for this document and review it to understand the financial relationship between the builder and the lender.
- Negotiate incentives with your own lender Some builders will extend partial incentives even if you use an outside lender. Ask whether any closing cost contributions or upgrades can be retained if you choose a different financing source.
- Review lock-in deadlines carefully Preferred lender clauses often include rate lock deadlines and application timelines. Understand these dates to avoid forfeiting incentives or delaying your closing.