An Exclusive Right to Finance clause is a provision typically found in buyer-broker agreements that obligates homebuyers to secure their mortgage financing through a lender connected to the real estate brokerage. This clause effectively restricts borrowers from seeking loans with other lenders and can impose a penalty—often around 1% of the loan amount—if they do so.
Homebuyers encountering this clause should be cautious, as it restricts their ability to shop around for the best mortgage deals, ultimately increasing their costs. For example, on a $400,000 loan, a 1% penalty means an extra $4,000 expense for choosing an outside lender. This limitation diminishes competition among lenders, potentially leading to higher interest rates and fees.
Real estate brokerages may justify this clause by claiming that working with affiliated lenders streamlines the transaction process and improves communication. However, this practice is also a significant source of revenue for brokerages, as they earn commissions or fees from multiple parts of the transaction: real estate commissions, mortgage origination fees, and sometimes title insurance.
Shopping for mortgage rates is crucial because even small differences in interest rates can result in substantial cost savings over the life of a loan. The exclusive clause removes the incentive for affiliated lenders to offer competitive rates or favorable terms since the borrower is contractually obligated to use their services.
If you see this clause in your buyer-broker agreement, carefully read the contract and consider requesting its removal. Insist on this change in writing and be prepared to work with another agent if the brokerage refuses to remove it. Signing a contract with this clause can legally bind you to pay fees if you choose a different lender.
For more information, you can refer to the Consumer Financial Protection Bureau’s guidance on using mortgage lenders (CFPB) and learn about related mortgage terms such as mortgage brokers and qualified mortgages on FinHelp.io:
Understanding and avoiding restrictive clauses like the Exclusive Right to Finance empowers you to make more informed mortgage decisions and save potentially thousands of dollars on your home purchase.
