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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2015

Build an Advantage Over Your Competition

Becoming an expert on renovation loans can give you an extra tool for landing referrals

Build an Advantage Over Your Competition

In today’s mortgage industry, there are few things more important than developing additional business. For some originators, it’s essential to remaining merely solvent, while for others it is equally important for increasing profits. The current regulatory environment has made originating loans more expensive. Brokers and bankers can either try to increase profitability on every loan — which isn’t the best choice in a competitive market — or they can build a bigger network to increase the number of loans that they originate.

New clients don’t just come from advertising, buying sales leads or other costly methods, however. The most efficient and cost-effective way to build your business is to increase the number and quality of your referral sources. To do this, you must add more tools to your tool belt by looking for loan programs and niches that give you an advantage when calling on Realtors.

It can be challenging to walk into Realtor offices and forge valuable referral relationships when you’re  offering the same products as your competitors. Many Realtors aren’t looking for new mortgage origination partners because they’ve already found a loan officer. Even if those partners aren’t exactly what they want, as long as they close loans and the Realtor gets paid, those Realtors are happy.

Get your foot in the door

Consider, however, if you could walk through the door of a Realtor’s office with a program or two that most of your competitors don’t offer or don’t service in a satisfactory manner. If you want to grow your business and establish new relationships, you might want to  become a master of renovation lending.

Many loan officers are fearful of Fannie Mae HomeStyle loans and Federal Housing Administration (FHA) 203(k) loans, both streamline and full. They have heard that these loans are hard to originate and a challenge to close. The fact is that these loans can be simple. With  45 minutes to an hour of training, almost any loan officer can become proficient at originating renovation loans. 

Show your Realtor partners how renovation loans can grow their business.

A 203(k) loan isn’t much different from a 203(b) loan with some additional riders, and a HomeStyle loan is just a Fannie Mae loan with some additional riders. Here is a brief overview of the differences and uses of these three renovation loan programs: FHA 203(k) streamline. Many loan officers have heard of the 203(k) streamline, which is soon to be called “limited.” This government-insured program is designed for limited rehabilitation of one-unit attached or detached single-family residences, planned unit developments or condos. Maximum financing is allowed and there is no minimum repair amount. The maximum repair amount that can be financed is $35,000, but soft costs are factored into this amount so the actual cost of the work will be around $30,000. Streamline loans don’t allow for structural work, so they’re largely used for updating flooring, performing roof repairs, updating kitchens and/or bathrooms, and other nonstructural improvements.

  • FHA 203(k) full. The full version of the 203(k) loan allows borrowers to perform structural and nonstructural rehabilitation on one- to four-unit attached or detached single-family residences and condos, as well as two- to four-unit owner-occupied properties. Investment properties are not eligible. The minimum repair amount is $5,000, but  the maximum repair amount is limited only by the maximum county loan limits imposed by the U.S. Department of Housing and Urban Development. Borrowers can build additions and make structural changes, as well as update kitchens and bathrooms, and make other renovations. The 203(k) full requires borrowers to use FHA-approved consultants, however, but this can be a good thing because they provide valuable services and free you up to originate more loans. There is a reasonable cost for these  services, but it is well worth it for the right consultant. You can find consultants online at by searching “203(k) consultant.”
  • Fannie Mae HomeStyle. This third program is the hot new product that everyone wants. With HomeStyle loans, borrowers can do structural and nonstructural rehabilitation to one- tofour-unit primary residences, single-unit second homes and even single-unit  investment properties. There is no mini- mum repair amount and the maximum repair amount is 50 percent of the value of the property after improvements. HomeStyle loans can be used to build additions, make structural  changes, and update kitchens and  bathrooms. HomeStyle borrowers can also add luxury items like swimming pools or outdoor kitchens. Like the 203(k) full program, HomeStyle loans require the use of a consultant, but only when renovation costs exceed $15,000. Fannie Mae also allows financing greater than 80 percent loan-to-value ratio on owner-occupied properties with mortgage insurance.

Become the renovation expert

Structuring renovation loans requires extra steps, but the most challenging  part comes after the loan is closed and funded. At this point, however, originators can be completely out of the loop — depending on the investors  funding the loan. It is important to find an investor who knows how to  efficiently handle loan draws, contractors and title work without creating  discord with your borrower. Doing so will allow you to go on to the next loan secure in the knowledge that your client is in good hands.

Once you understand the steps needed to originate renovation loans and have forged a working relationship with a knowledgeable renovation lender, you can show your Realtor partners how renovation loans can grow their business, which in turn will help your business developments efforts. Not only will Realtors come to you with renovation opportunities because you have that expertise, but they will likely begin to refer other loans to you once your foot is in the door. When you grow their business, they will grow yours.

Many listing agents will need your expertise, as well. A lot of homes can benefit from renovation prior to being put on the market, a fact that home improvement shows like “The Property  Brothers” and “Love It or List It” have helped spread to Realtors and the  general public. Nearly every homeowner with access to cable television now realizes that they can take an older home and make it comparable to a more expensive new home or take an ’80s home and update it  to make it more marketable.

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Renovation lending has become an  invaluable tool to both listing and  selling agents and can make you an essential element of a Realtor’s team of partners. If you want to make 2015 a great year and find a new way to grow your business, it may be time to look into this growing niche.


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