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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2017

Renovating and the Art of Origination

Home remodeling is not a fad, it is an opportunity

This has been an interesting year in the housing market. As of this past June, the number of U.S. Homes for sale was down nearly 45 percent from its peak in 2011, according to a recent Zillow Housing Market Overview. The competition for existing inventory has been fierce, which has helped shift buyer mentalities and actions. Where the focus in the past was often on new construction, or move-in ready homes, renovation is now far more accepted within the homebuyer community.

According to Metrostudy’s national Activity Index, home remodeling hit an all-time high in the first quarter of 2017. This likely was aided by millennial buyers who are bringing a new vision to homebuying, one restricted by smaller budgets and guided by outside influences that have created a more accepting and creative homebuyer.

Remodeling shows like “Property Brothers,” “House Hunters” and “Fixer Upper,” plus slews of podcasts, YouTube videos and social media posts have influenced and educated today’s homebuyer. Borrowers now realize that renovation is not only an affordable option but, in many cases, the best way to get what they want.

Site-built homes often cannot provide the affordable options that today’s buyers are looking for. In fact, as of this past August, the median price of a new home was $45,000 higher than it was for an existing home, according to the National Association of Home Builders.

Affordability options

This dilemma of new construction not meeting the demand of the marketplace was a topic of conversation at the recent Dallas Construction Summit. The topic of how to get more builders to provide affordable housing for the next generation of homebuyers was discussed. For now, renovation, and even the rapidly evolving modular home market, are options many borrowers are exploring.

Many buyers, especially young, first-time homebuyers, are looking in a lower price range than most new-construction inventory offers. Because of this, current homebuyers — and mortgage originators — are opening their minds to increase their options.

Watching the “Property Brothers” tear down a wall to give a home a more open feel, for example, or seeing the “Fixer Upper” couple replace worn carpeting with hardwood floors, has made potential buyers more aware of what renovation can provide.

Renovation has opened a new world of options and possibilities at an affordable price for today’s homebuyers. The idea that you must buy a move-in ready house may be a thing of the past. Renovation is becoming a big growth area in the industry, and originators should be prepared to respond to this trend.

Be a strong partner

The key for originators today is to become an expert. In a marketplace where there is a shortage of inventory — specifically a drastic shortage of affordable inventory — originators must become invaluable resources who can guide clients from loan options through closing and everything in between.

It takes experience and educated originator-partners to help buyers navigate the process. 

Federal Housing Administration (FHA) 203(k), Fannie Mae Homestyle, or even Veterans Affairs (VA) renovation loans are the primary options that originators should learn about so they can educate borrowers who are looking for renovation-loan guidance. FHA 203(k) renovation loans, for example, had a stigma in the past of being process-heavy and time-consuming. Now, it should require the same turn time as any other type of purchase in the housing market. Originators can do that if they educate themselves on the proper steps.

It’s not just understanding how to calculate a loan amount that turns originators into strong partners for today’s buyer, however. It also requires understanding the full process flow and becoming well-versed in explaining the nuances and intricacies of the construction process itself.

Similar to a wedding planner, originators should create a buyer timeline checklist. Tell them exactly what is going to happen at every step in the process. Hold their hands and walk them through the nerve-wracking experience of taking out a mortgage. More than that, however, originators who are renovation experts can help their clients get through the process of qualifying contractors, getting multiple bids and understanding the work they’re looking to do.

Every one of these loans is unique and different. Different geographic regions present different permit obstacles. It takes experienced and educated originator-partners to help buyers navigate the process in a quicker, easier and more satisfying way.

Without that component, it’s difficult to pull off seamless and easy transactions. That, in turn, leads to closing delays and dissatisfied borrowers. A better educated, more experienced originator can elevate the process and improve communication with buyers to help them work with contractors and deal with all the issues that can come up.

As an added benefit, originators skilled in renovation loans will likely find that Realtors will begin referring borrowers to them. An originator who not only can do the loan, but also understands the entire process flow and can help guide buyers through the whole process becomes a stronger partner for Realtors as well as borrowers.

What lies ahead

The industry is finally coming to grips with the changing homebuying landscape. Limited affordable inventory and a new type of buyer with specific needs requires a certain expertise. If originators don’t avail themselves of the information needed to master the products the marketplace currently demands, they are going to become outdated and unable to take advantage of the current marketplace.

2018 should see renovation experience its greatest growth ever. Homeowners will continue to stay put as they realize it’s not affordable to sell and buy elsewhere. Instead, it will be better to upgrade and invest in their existing property.

Next year also will continue to see our industry be influenced by the needs and demands of millennial buyers, with their economic restrictions and tremendous exposure to what’s new and possible in a home, thanks to TV and the internet. In short, originators can expect what was once unexpected as a norm: The old need for new will become a nod toward the newly improved.


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