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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2017

Amplify Opportunity by Finding Your Niche

Renovation and construction loans offer you a leg up on the competition

This past fall, the devastation of hurricanes Harvey and Irma wreaked havoc on the lives of many Americans. Real estate analytics company CoreLogic estimates that Hurricane Irma property damages exceed $42 billion and could be as high as $65 billion.

For residential properties alone, the total damage caused by Hurricane Irma is estimated to be between $25 billion to $38 billion, while Harvey left an estimated $25 billion to $37 billion in residential property damage in its wake.

The destruction caused by these hurricanes is both financially and emotionally devastating to the people who experienced them. For those who had uninsured properties, the consequences are even more shattering.

Lending a hand

In these serious circumstances, the health and safety of the survivors is, of course, the first priority. Many survivors with severely damaged or destroyed properties also now find themselves homeless, and the long road back to homeownership can seem daunting.

As a loan originator, this is where you have a chance to make a difference. By working with a lender that offers a variety of renovation and construction loan products, you will have access to the tools necessary to assist borrowers who may be caught in a difficult situation.

Knowing how to effectively match these loan programs with the borrowers who will benefit most from them is another story. It will take time, research and education to ensure that you understand the renovation and construction loan processes.

Many loan originators are wary of taking on too many renovation or construction loans simply because these financing tools involve many moving parts, such as contractors, consultants, appraisers, etc. As a result, the loan process can take longer compared with a conventional loan. When you can present yourself as an expert on these types of loans, however, and form strong professional connections with Realtors and builders, you will find that your expertise is particularly helpful for many borrowers who are looking beyond the typical purchase loan.

Constructing a specialty

For construction loans, specifically, it’s crucial to develop strong professional relationships with reputable builders in your area. If you want to reach the borrowers who are most interested in building new homes, this is a non-negotiable step in the process.

When approaching builders, it is essential again to present yourself as an expert. Often, builders can be preoccupied with the perceived challenges of the construction loan process and are looking for an ally who can ensure that the process will go smoothly for their customers. Most people only build a home once in their lifetime (if even that), so builders are not about to risk their reputations by providing poor service or products to these individuals.

Offering your customers and business partners a variety of products is one of the best ways to earn more business. 

This is where you, the mortgage originator, come in. If you can address some of the challenges often associated with construction financing, you will be more likely to pique the interest of builders whose clients are looking for financing options. A few of the concerns you may want to address include the following:

  • Downpayment funds. In many cases, the borrower’s funds may be tied up, waiting for their existing-home sale to close. If you can offer a lower downpayment option, it can help jumpstart the construction process. 
  • Financing approval. For a builder, nothing is worse than working with a customer for six to eight weeks before finding out if that person is even qualified for financing. If you can offer a shorter time frame for verifying a borrower’s ability to finance, you benefit the builder as well.
  • Rising interest rates. One concern that potential customers may have is the risk of rising interest rates during the construction process. If your company offers extended rate locks, this can be a huge selling point for both borrowers and builders.

Of course, there are many additional aspects of the construction-financing process that may be perceived as challenges by builders and their customers. It’s your job, as the expert, to educate them on the ways these challenges can be overcome. When you can do this successfully, you earn not only their respect, but also their business.

Building renovation prowess

Renovation loans sometimes get a bad rap, because they also involve a “niche process” that can take more time than a conventional loan. Yet, by making yourself an expert, you will immediately stand out from other mortgage originators who haven’t put the time or effort into understanding renovation loans.

Renovation loans are particularly important in today’s market and environment, and not just because natural disasters are becoming common occurrences. In particular, there is a definite need for renovation loans currently in Florida, Texas and California. For survivors of natural disasters whose homes are salvageable, a renovation loan can be exactly the kind of assistance they badly need.

Even in areas where natural-disaster damage is not a factor, however, low housing inventory also can create a strong need for renovation loan experts. When homebuyers cannot find a home that meets their needs, it’s often possible to modify an existing home to fulfill their expectations.

In the case of low housing inventory, it’s beneficial to team up with a reputable and trusted Realtor in your market — or several Realtors. If your Realtor partners are facing the challenge of finding suitable properties to show their purchase clients, this is where you come in. By offering renovation loan options, a “just OK” house can become a dream home for many homebuyers.

Perfect your pitch

Similar to construction loans, developing expertise in renovation financing will give you a significant competitive edge. A few of the ways you can market renovation loans through Realtors include:

  • Address lack of inventory. Explain to your Realtor partners that a renovation loan can help homebuyers who aren’t finding many options. Whether a home has outdated features (such as green kitchen cabinets), or is in need of standard renovations (like a new roof), a renovation loan can open up possibilities that didn’t exist otherwise.
  • Focus on location. Borrowers should not have to decide between an ideal house in a bad location and a less-than-perfect house in an amazing location. Although the location of a home cannot be changed, the home itself can be updated to reflect a borrower’s preferences and needs.
  • Eliminate the “but”. When Realtors watch homebuyers walk through properties, they hear a familiar chorus of statements such as: “The house is great, but the kitchen is out of date”; “I love this home, but the master bedroom is too small”; or “I really like this one, but the roof is in bad shape.” You can help Realtor partners eliminate the “but” by focusing on renovation loan options.

Don’t forget to remind Realtors that renovation loans close just like any other loan and aren’t as complicated as some believe. Also, renovation work is completed after a loan closes, so Realtors receive their commissions at closing, just like they would with any other loan.

•  •  •

Offering your customers and business partners a variety of products is one of the best ways to earn more business. By becoming an expert on construction and renovation loans — and working with a lender that offers those products — you will be one of the few mortgage originators who has put the effort into understanding what are not only niche products, but also niche processes. Your business partners and customers will appreciate your knowledge, expertise, and dedication — especially when it leads to their loans closing in a smooth and timely manner.


 
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