The New Construction Lending Opportunity

There is a new construction lending opportunity in the US housing market. New homes need to be built, and they need construction financing from lenders with efficient construction lending processes in place. Here’s what you need to know.

Policymakers Are Changing the Housing Landscape. Why Lenders Should Pay Attention.

As new policymakers were sworn into office at the beginning of 2019, many have had a razor focus on the housing supply in their jurisdiction. The housing shortage has many factors, including an aging supply of homes, homeowners remaining in homes for longer, and not enough new housing being built at the desired price point. If families never move out of starter homes and more new homes aren’t being built, then there aren’t any starter homes for new buyers to move in to. Additionally, there isn’t enough approved land to build on. According to a NAHB survey, since 2016 approximately two-thirds of home builders have reported low or very low lot supplies in their markets and often site this low inventory as one reason new construction volume remains below historic levels.

Here in California, newly elected Governor Newsom has a bold campaign promise: build 3.5 million units of new housing in California by the year 2025. There is no doubt this is an aggressive goal. Many articles have been written on whether or not this is actually possible, and here at Land Gorilla we are watching with bated breath. All we know is that the cities who comply with the appropriate amount of new housing will be given incentives, and those who do not will be penalized. Governor Newson’s budget proposal allocates $500 million for incentives for localities to create new housing, as well as $500 million for home construction. This is only part of the budget proposal, but all signs point to the Governor being very serious about his campaign promise for housing reform. He has also begun penalizing non-compliant cities.

The first move Governor Newsom made came in January when it was announced that the state of California is suing Huntington Beach for, “standing in the way of affordable housing production and refusing to meet regional housing needs,” which are actions that “harm California families’ ability to find affordable places to live and drive up housing costs for everyone.”

Suing one of your own cities is an interesting move as it will force Huntington Beach (and the 46 other California cities included in the lawsuit) to make changes in their housing policies, whether they like it or not. No matter what you think about this method, one thing is clear: new housing is coming.

So what does this mean for lenders? It’s not clear exactly how or when all this new housing is coming, but certainly for California, if not nationwide, new housing will be on the upswing. We have some advice for all lenders.

Lenders Not Offering Construction Loans:

What are you waiting for? Now is the perfect time to start building up your construction and renovation loan program. A few things you’ll need:

Support in the boardroom: to get the power you need behind this program, the board needs to support this new loan program entirely
A robust Loan Origination System: the LOS is a key player in originating construction loans. Make sure the one you have can integrate with a doc service provider, construction loan software, and an eSignature solution
A specialized document service provider: The doc service provider will be incredibly helpful in determining the proper forms for each project. Make sure it integrates with your LOS
Construction loan management software: This is where Land Gorilla comes in. We are the best way to efficiently manage construction loans, and at the volume we hope you will be at, it makes construction lending extremely efficient. Don’t even bother with a manual process. Make the investment in the software
A dedicated subject matter expert: Someone needs to know the ins-and-outs of the program. It works best if one team member becomes the subject matter expert who is in charge of keeping the program running. Download construction lending resources from our library
Knowledge of different government loan programs and corresponding regulations: Learn about and become a seller/servicer of FHA, 203(k), Fannie Mae Homestyle, USDA single-close, or VA

Lenders Offering Construction Loans

It’s time to get your house in order. Are you ready for the possible onslaught of construction lending? We have a few tips for you, too:

Still using spreadsheets? Stop it. It’s wasting your time, adding extra risk, and holding you back. You can do better than spreadsheets
Construction management software: replace spreadsheets with software that will make things a whole lot easier for you