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   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2005

Building with Builders

Gaining construction-loan referrals requires strong choices with lenders and builders

r_2005-09_Peterson_spotRefinance markets come and go. Developing strong and consistent sources of purchase business is the key to success for loan originators.

A good source for this purchase business is residential construction loans referred from active builders. By originating loans through these relationships, you encounter less competition, greater earning opportunities on each loan and tremendous loyalty with each builder. As long as you have the knowledge, product and service required to help turn builders’ prospects into new homeowners, you will get the first shot at most of your builders’ deals.

Originating construction loans requires building two key relationships — with your wholesale construction lender and with your builder.

Choose lenders carefully

Finding the right construction lender is your foundation for building this business line. There are many options, as more lenders have entered the construction-lending market bearing different products, coverage areas and support services. Signing with more than one lender will increase your options and product choices. It also allows more flexibility to serve your borrower. Builders will be happier, too, as you improve your ability to create more deals.

Seek lenders who offer a variety of true single-close construction products and two-close options, all for use with new construction or major home improvements. Most single-close products include one set of closing costs, no update of credit docs at completion, a capped rate during construction with a float-down option at completion and payment to the broker at the closing of the construction loan, rather than after the permanent loan closes. All are benefits to your borrowers.

It also helps to select lenders who can turn construction disbursements to your builder quickly. Three to five business days are an average time frame, especially for national lenders. If lenders can’t service your builder efficiently, you will have a hard time obtaining additional referrals from a builder regardless of the rest of the loan process.

With lenders, remember that knowledge is your key to significant business volume. Most horror stories regarding construction loans boil down to two problems: lack of knowledge that leads to improper loan structure and mismanaged expectations or poor communication among the loan officer, lender, borrower and builder. Prevent these instances by learning how the lender’s products and procedures work while ensuring all parties know their duties and what to do next.

Although more loan officers have access to construction products than ever before, the number of loan officers who have learned the construction-lending business has not grown as quickly. Few loan officers can speak knowledgeably with a builder about construction lending. That means there is opportunity to shine if you invest some time. It’s not about memorizing details — just knowing where to find answers, when questions arise.

Make sure your lenders have training and support services on their products, procedures and forms, and take advantage of them. You will be able to sell the builder on your level of expertise and ability to counsel the builder’s prospects effectively. In turn, that is how you will separate yourself from your competition.

When you find a lender capable of supporting your origination efforts while enhancing your builder relationships, you can tap new resources and bring in more loans for years.

Make builders’ needs your needs

Once you have selected the right lender, it’s time to start working on your builders. Remember that the majority of builders just want to build homes. The less they have to worry about the financial side of the business, the better. That’s where you come in.

If you can demonstrate how you can lift this financing burden from their shoulders and then make it happen, you will have a valuable partner and friend for life.

Where to start? The first step is to identify the active builders in your market, find out how many homes they are building each year and how they are financing the construction. Are they using their own lines of credit or are borrowers acquiring construction loans?

Next, target and speak with five to 10 builders. You must communicate that the purpose of your meeting is to demonstrate how your new services and products can help them build more homes. Research their geographic markets, how many homes they build per year, the type of homes they build, price ranges covered, if they handle remodeling and with whom they handle construction financing. Let them know you did your homework, and ask them to supply information you are missing.

The next step is to identify builders’ needs. Without this information, you do not solve their problems any better than an advertisement they see on television. Find out what is working well for the builders and show how your services and products can make it even better. Find out what isn’t working well and show how you can fix it. Your first meeting should be 90 percent listening and 10 percent talking. After that, if you can show builders how you can help them improve and solve problems, you can ask for their business right there.

If you can’t demonstrate how you can help them immediately, you can recap your main points and ask for a follow-up meeting. Then, itemize each problem and your corresponding solution to help them sell more homes, increase loan approvals and satisfy more of their customers.

To set yourself apart from other loan officers, offer to provide additional services for the builders and their support team. Help with open houses by providing onsite prospect prequalification. Explore joint advertising or co-marketing with your builders. Offer training support for their sales staff or their Realtors. Refer prospects to your builders whenever the opportunity arises.

If builders you meet also use their own lines of credit to fund construction, show them how you can help provide financing. Mixing in construction loans on certain transactions can:

  • Reduce overhead by passing the interest charges to the buyer; 
  • Improve builders’ cash flow; and 
  • Free up their lines of credit for use on spec or model homes, which allows them to build more homes at one time.

When you start receiving referrals from your builders, do not take their business for granted. Contact the builders regularly to review what is working well and what needs to be improved. Make sure your lender is handling the draw process well and that your builder is satisfied. Discuss success stories and applications that didn’t qualify. All can help market the builders’ product. Failing to do so can leave open doors for their competition — and yours.

Take care of your builders and their prospects, and your builders will take care of you. Builders traditionally are loyal, and you have the power to create an annuity while building relationships that will last many years.


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