Both commercial and consumer construction lenders should be looking into 2020 with the knowledge that both sectors are ripe for growth. IBISWorld reports the commercial building construction industry has grown substantially over the five years leading into 2019. The National Association of Realtors reports single-family housing starts expected to break 1 million for the first time since 2007, and those new homes are desperately needed as the nation’s housing inventory is still way below demand. As you look into the new year, you may be considering what role your construction loan programs will play, where you need to invest, what could be done better, and how to increase loan volume.
We have compiled seven tips for commercial and consumer lenders to help you get more from your construction lending programs this year.
1. Get More From Your Commercial Construction Loan Program By Upgrading From Spreadsheets
Commercial construction lenders know each project is of epic proportions. These huge projects are historically managed on spreadsheets which are cumbersome to manage and could be slowing down your ability to scale. To get more from your commercial construction loan program this year, you need to switch to software specifically designed to manage each commercial construction loan.
Could spreadsheets really be holding you back?
Well, yes. Just take a look at this fun–yet sobering–article on the costliest spreadsheet errors. You know the tedious experience of the double, triple, and quadruple entry required in commercial construction lending, you know the ramifications if one of those cells has a typo, and you know the pain it is to double-check your entries before proceeding. You are dealing with huge sums of money on a complex project, and you need to be liberated from spreadsheet jail and get sweet software freedom that takes the pain, hassle, and risk out of the spreadsheet management process. Software specific to construction loan management allows you one initial input and will draw all pertinent information into every other required form and creates checks and balances to further reduce risk by being prompted when to complete tasks and have an easy view of potential red flags and project management.
Continue Reading: 10 Things You Need To Know About Spreadsheets
2. Get More From Your Commercial Construction Loan Programs With The Best People
Ten-X Commercial reported that 2018 was the second-largest year on record for U.S. transaction volume, at $537 billion dollars. This transaction volume and investment activity draws demand for talent that will thrive under this workload. If you have a slice of this loan volume with a healthy pipeline, you’ll naturally want to set your team members up for success, including offering them the tools they need to scale and do so efficiently.
Attracting and retaining top talent
If you haven’t considered technology as a way to attract and keep top talent, it’s time to look into it. Technology allows the loan administrator to work faster and safer, provide better experiences for stakeholders, and generally pull the commercial lending process into the 21st century. Some people are afraid of automation, as they feel it will take over their jobs.
Anyone working in commercial real estate knows they are indispensable to the process and aren’t afraid of technology that allows them to do their jobs better. Not only are they not afraid, new loan officers are actually looking for it. In fact, 71% of millennials say that the degree to which an organization embraces technology/innovation is a factor influencing where they work.
3. Get More From Your Commercial Construction Loan Programs With A Self Analysis
Innovative companies are taking some purposeful time to analyze their systems and practices. The end of the year and the start of the new year are great times for this activity. You could assign a single person the task, gather feedback from each department head, or send out a company-wide poll to see what is working well and what can be improved.
- Where are the disconnects, silos, or stumbling blocks?
- What bottlenecks you’ve been struggling with for years?
Gather insights from your employees. There is a good chance they didn’t even know something could be improved. Ask this question to your employees, “What’s one thing that would improve the way you get your job done?”
For example, we have heard many lenders express frustration that obtaining a report from spreadsheets is an accounting trail nightmare, and there isn’t one place to look at the state of all loans in progress at one time. You will find that construction loan management technology has caught up with these pain points.
4. Profit From Consumer Construction Loan Programs, Too
If your main focus is commercial, you will know that you reap a high payout, but the time waiting for that return can be long. So, in tandem, make sure you have a great consumer construction loan department humming along. Those loans can be your bread and butter, if you wish, and you’ll be able to sell those loans sooner than you would see a return on commercial projects. See below for more about consumer construction.
The refi boom came at a great time of year: Moving into winter with fewer construction projects underway, lenders are able to supplement with all the available refis. But refis will dry up, spring will arrive, and you need to be ready to ramp your consumer construction loan programs.
5. Renovation Loans Could Be Your Secret Weapon
To get more from your construction programs, you need to market these programs. If we were to suggest which to market at this time in the industry, construction or renovation loans, we would suggest putting your marketing dollars behind renovation, and we have a few reasons why:
Most homes in America are older than 50 years old.
The homes people are living in and the homes on the market are both a great fit for renovation loans. Many homes need updating or major overhauls. Boomers are aging in place and need to renovate to ensure they will be comfortable as the years go by. Those entering the housing market need to renovate to make the home work for their modern lives.
Consumers don’t know renovation loans are an option
The need is certainly there, so why spend marketing dollars on it? Consumers don’t know renovation loans are an option, so they pay for renovations with savings or HELOCs.
Consider this: How many people have enough savings for a renovation (or want to use that money for a renovation) and how many people want to use their HELOCs for renovation?
Create marketing campaigns around renovation loans. More specifically, get your digital marketing team to target people who search for “HELOC” on the internet, then serve them with your renovation loan text ads and link right back to you.
Your potential reno borrowers have been misguided because of a lack of available information, so take advantage of the opporunity by educating them. You will build trust and referral business as a result.
Renovation loans could increase each new mortgage by $40,000
Here is another way of thinking about renovation loans: because renovation loan amounts reflect the value of the home after reno is complete, renovation loans could increase each new mortgage by $40K. Almost every home on the market could use a renovation loan, even some new construction could qualify.
So why not? Start thinking about your loan originations differently and you and the borrower will be rewarded.
6. Offer More Construction And Renovation Loan Programs
You should always be thinking, how can the consumer finance this home? What products do we offer that will be a great fit for this potential borrower? In addition to renovation loans, consider running more programs to reach a greater audience and meet the varying needs in your community. Below are two of the latest programs that you may want to consider.
Speaking of renovation loans: Do you know some of the options for renovation loan programs? Both Fannie Mae and Freddie Mac offer renovation products. The market is ready for renovations, but are you ready with loan products to meet the need?
Additionally, Fannie Mae has updated its selling guide to include Construction to Permanent for manufactured homes. If you haven’t considered manufactured homes, now is the time to look into them. They solve for a myriad of problems usually present with site-built construction, like weather. Additionally, the current housing crisis is ripe for faster builds and more accessible home prices. The economic, demographic, and environmental changes the country is currently experiencing are making a case to pivot into more factory built homes. Expanding the programs you offer will expand your loan volume and allow you to do more with your construction loan program this year.
7. Be Known For Excellent Borrower And Builder Experiences
When you increase borrower and builder satisfaction, they become net promoters for you, and help drive new traffic to your lending institution. Borrower and builder satisfaction boils down to the experiences they have at every single touchpoint.
So, what kind of experiences do they want? According to Ellie Mae, all borrowers want the same four things from their lender: speed, convenience, security, and personal interaction. This is often found in the right technology with the right balance of hands-on and autonomous or self-service actions. If you are a depository, consider your borrowers for a moment. If you are lending in the 21st century, you are probably already providing these things for your borrowers.
How does that change for your construction borrowers? Are they getting the same experience?
Or, do things come to a screeching halt and we revert to the ways of the 1990s?
This is where construction loan management technology enters the picture. Not only is it an incredible game changer for the lender, but certain software providers allow borrowers and builders an inside view for specific actions on their loan files. A portal specifically for the borrower or builder to check in, communicate with you, and generally track the project are experiences that buyers and builders want.
And speaking of builders, our friends at Levelset have found that 75% of contractors desire more visibility into the payment process. The builder has a complex project with crews and many moving parts they are managing, and it’s no wonder contractors and builders want more visibility when they are working with a lender.
These 7 tips will help you get more from your construction loan programs this year.
- HELOC V Renovation Loans: What Every Lender Needs To Know
- 10 Things You Need To Know About Spreadsheets
- How To Scale Your Construction Program Big Time This Year