This blog has been updated on November 6, 2019
5 Practical Tips For Scaling Construction And Renovation Loan Programs in 2020
Forward-looking lenders will be ramping their construction and renovation lending programs in 2020. Will you be joining them? A few points to consider:
- Aging Inventory: As it stands, 40% of the country’s 137 million homes are at least 50 years old. This aging housing stock has fueled the remodeling and renovation industry.
- Influx of housing needs: Mortgage applications are on the rise, reflecting a surge in homebuyer demand. Danielle Hale, the chief economist for realtor.com, also projected that Millennials will continue to make up the largest segment of buyers, with 2020 expected to be the peak Millennial home-buying year as the largest cohort turns 30.
Given the lack of available or habitable inventory and the increase in demand, the stage has been set for lenders who want to increase market share in construction and renovation lending. We want to share with you five ways to scale your programs, increase your construction and renovation loan volume, boost productivity, and improve your customer’s experience – even attract and retain top talent.
Are you looking to ramp your construction and renovation loan program in 2020? Keep reading.
Tip #1: Get In The Game
The opportunity for construction and renovation has never been higher for lenders as it is today. However, the construction and renovation loans are a specialty product that the majority of lenders have never originated.
Is this you?
Not to worry, there are plenty of construction lending resources available to help you get started.
The issue with housing demand can be alleviated, in part, by increasing the number of construction lenders. In other words, the supply issue we are facing isn’t solved with technology alone. The supply issue is solved by creating more suppliers.
Are you referring customers down the street?
If you are offering renovation loans, perhaps it’s time to expand into the CTP space, or to partner with a local builder on Lot Development. Point being, you need to get in the game if you want to win.
The opportunity is here.
Tip #2: Ditch Your Spreadsheets
If we could pinpoint one thing across every lender that could drastically improve their processes, it would be to ditch the spreadsheets. It’s sobering to realize that 88% of spreadsheet documents contain one or more errors, and it’s not uncommon to hear that a few errors have cost financial institutions thousands of dollars over time. Digitizing these fields keep the transfer of data much more accurate and pure, especially as fields have to be copied over and over again for mortgage documents. When lenders rely on paper or spreadsheets, accuracy is jeopardized and visibility is almost non-existent.
Consider the amount of time required for accurate management and reporting with spreadsheets. Old-fashioned manual management and reporting is a major time suck, but when you digitize the process, it becomes quick, accurate, and hassle-free.
The introduction of purposeful software brings with it smart automation tools. Look for software that allows configured processes and hard and soft stops based on the loan programs you run.
Tip #3: Focus On The Customer Experience
Visibility. In a recent study, it was found that more than 75% of contractors desired more visibility into the payment process. In construction lending, it is frequently the builder who is your repeat client. So when we say “customer experience” we mean both the builder and borrower, and any other stakeholder interacting with you. The builder wants and needs to have a great user experience with you and that is often found by going digital.
Access to online portals allows for easy communication between key project stakeholders with an accurate view of current projects. Your borrowers, contractors, and investors all need to have an understanding of the project, and permissions to act on the loan file where pertinent to them, such as uploading files, submitting change order requests, or electronically signing time-sensitive documents.
Scaling the draw request process. Inefficient construction loan monitoring and problems buried deep in a spreadsheet cause more wasted time and money at the expense of the lender. Migrating to a digital draw management process allows lenders to more accurately monitor, track, and see warning signs early and clearly.
Keeping and recruiting top talent. This visibility and ease across the entire loan pipeline is a major benefit to loan originators who prefer working at companies with streamlined, efficient processes. For example, construction loan software makes onboarding new construction loans much faster; providing a great experience for everyone involved.
Yes, digital draw management software is the way of the future but it actually goes deeper than simply adopting a new system. It is crucial that you examine your current process before you evaluate technology solutions.
Tip #4: Get Comfortable In The Cloud
Almost every new technology you encounter is Software as a Service (SaaS). Instead of investing in software that is hosted locally on your server, SaaS is hosted off-site in the Cloud. That means, the software is accessible via any device with an internet connection.
This is one of the greatest benefits of SaaS for lenders – you don’t have to be on “the special computer” in order to use the program. You only need a secure login to access your construction loan file data – from any computer or device.
Since the software is a service, the service provider is in charge of security and compliance as it pertains to the data they host — an amazing benefit to the lender. For example, Land Gorilla’s data center is ISO 27001 and AICPA SOC 2 certified which outlines and follows all the security standards.
Cloud-Based Construction Loan Software Updates and Maintenance
In addition, users of SaaS receive every update, every time, to keep their software current. When SaaS providers introduce new features and functions, they are all pushed out to every single user on the software at the same time.
No more required upgrades to the newest version and costly demands on your IT staff to maintain technology. Instead, the service provider does the heavy lifting for you.
Cloud-Based Construction Loan Software Cost
Another benefit of SaaS is the low upfront cost. Subscription services mean the cost is paid out over time, while on-premise systems require a hefty up-front cost, and then additional installation and upgrade fees over time.
Adding New Users is Simple
When it comes to adding users, it’s simple- request another seat. For on-premise software, adding users is not nearly as easy. In worst-case scenarios, you have to go through another installation process with the on-premise software just to get another user seat added.
Digitizing construction lending is best when based in the Cloud. Scaling construction loan programs for 2020 will come down to digitizing the process and making sure the software is hosted in the Cloud.
Tip #5: Construction and Renovation Loan Program Marketing
As a bonus to help scale your programs, we have a few ideas on how to market to potential borrowers. Increasing loan inventory is an important focus for many lenders this year, and construction and renovation loan programs can be a key player to reach this goal.
Is new construction gaining momentum in your community? Or are you seeing more aging homes and a higher need for renovation loans? Perhaps your community is experiencing the 90% of Baby Boomers who are looking to make improvements to their current homes, with a particular focus on bathroom renovation. Anticipate the needs in your community, ride the wave of what is trending, and create specific messaging around the loan programs you support.
Popular marketing methods include ads on your homepage or app, media placements, and newsletters. Perhaps the most effective is networking with your builders to gain referrals. In order to gain great referrals, you need to have a construction loan management process that is helpful to builders as well as your borrowers. That all goes back to digitizing the process.
Choose the best tool
Want to learn more about selecting the right tool to scale your program? Don’t forget to download your whitepaper for Construction Loan Management Technology right here.