In an ever changing housing market, lenders are beginning to focus on smaller market opportunities, which means those with niche loan products and fulfillment capabilities will stand a good chance of standing out from the pack. Interest rates are rising, housing inventory is low, and much of the available inventory is past its prime; nearly 65% of homes in the US are over 25 years old and many need updates, renovations, or repairs. Couple this housing dynamic with the natural disasters of 2017 which have displaced thousands of families, and conditions are ripe for lenders who focus on construction to permanent and renovation loans.
"65% of homes in the US are over 25 years old and many need updates, renovations, or repairs"
Residential Construction loans address two major shortcomings of the market: first, they add purchase loan solutions to a lender’s arsenal, and secondly, they address the challenges associated with an aging housing stock no matter if homeowners are looking to purchase and renovate, or simply want to stay in their home and update the property.
According to the Joint Center for Housing Studies, demographic trends are anticipated to continually buoy the market over the next decade, while the growing number of older homeowners accounting for more than three-quarters of projected growth in this time. Though remodeling and home improvement rates are safe given gen-X homeowners entering their prime remodeling years, the baby-boom generation is expected to continue driving spending gains in new construction and renovations over the next decade, which again bolsters the need for competent construction lending solutions.
The complexities of residential construction lending present quite a challenge for many lenders as they lack expertise to launch competitive solutions,while others face challenges with internal constituents left with a bad taste in their mouth from the housing crisis. However,new services, vendors, and technologies have emerged to help lenders avoid many of the most common pitfalls: deficient budgets, under or over disbursements, project funding delays, and builder performance, just to name a few.
By aligning with industry partners who can provide a vast array of pre- and post-construction services and innovative technologies, lenders can feel confident they have control during the life of the loan.The end result is a residential construction lending process that is far less complex and risky than it was even a few short years ago.
About the Author
Tim Landwehr has over 30 years of experience in residential construction lending, including eight years at IndyMac Bank, where he was responsible for their national retail residential construction lending platform. He joined PHH in 2013 and now oversees all PLS client relationships and fulfillment services.