Unlocking the “Aha”

Episode 43 | The Construction Lending Podcast

Subscribe on your favorite channels:

Industry veteran Mitzi Hutchens joins the podcast to demystify construction lending. She shares the strategies for success, including the critical differences between fixed price and cost-plus contracts and the key to unbreakable builder trust. Mitzi breaks down essential risk management tactics—from requiring contingency funds to paying vendors directly. She closes with a bold pitch to the agencies.

Never miss an episode

Questions Answered

• How do you successfully build and maintain a partnership with a builder?
• What are the key differences between a cost-plus and a fixed price contract, and how should a lender manage the risk of a cost-plus contract?
• How does a lender avoid “surprise” expenses at the end of a construction loan?
• How can a lender protect the borrower and themselves when paying for long lead-time items upfront?
• What is the one change that would be a “100% game changer” for construction lenders?
• How do you teach people the “art of saying no” in construction lending?

How relationship-building, documentation, risk management — and the art of saying “no” — define success in modern construction lending

Construction lending is a specialized field—a “different animal,” as Mitzi Hutchens, industry veteran, herself puts it. In this episode of The Construction Lending Podcast, we dig deep into Mitzi’s journey through the highs and lows of construction and renovation lending, unpacking topics ranging from building strong builder partnerships to the nuances of cost-plus contracts, risk management, loan structuring, and the critical discipline of saying “no.”

The Journey Begins: From Loan Processing to Construction Lending Leadership

Mitzi’s story is one of organic growth—a climb through the ranks from loan officer to processor, processing manager, corporate trainer, and ultimately branch manager. Her introduction to construction lending was serendipitous but transformational. As a corporate trainer brought in to onboard a new branch in San Antonio, she was thrust into the world of two-time close transactions, where a network of mortgage, lumber yard, and private money companies intersected.

When the original branch manager left unexpectedly, Mitzi seized the chance to manage the branch herself. This meant not only learning the technical infrastructure and processes behind construction lending but also rebuilding the team—onboarding new loan officers, processors, and admins, and adopting a hands-on approach to training.

Building the Branch: Training for Success and The Importance of the “Aha” Moment

Construction lending isn’t just about crunching numbers. It’s about developing talent—especially when employees may have little or no experience in this niche. For Mitzi, the most rewarding moments came when trainees experienced their “aha” moment: when everything clicked and they understood not just the mechanics of the loan but the intricate relationships and expectations that define the process.

This “aha” moment involved three central pillars:

• Building Builder Partnerships:
  Construction lending is about forging durable relationships, not just closing one-off transactions. Builders who trust you will be loyal, and consistency in communication, follow-up, and service excellence ensures these partnerships flourish.
• Mastering Documentation:
  Unlike traditional mortgage lending, construction loans rely on complex documentation—contracts, plans, specs, budgets, builder’s risk policies, and more. Each builder may have distinct contracts and requirements, so loan officers must learn to dissect and interpret these documents skillfully.
• Loan Structuring Know-How:
  Understanding how to structure interim construction loans and permanent refinance loans within your Loan Origination System (LOS) requires synthesizing information from documentation with the unique needs of each project. It’s about aligning the loan amount, contract terms, land ownership, and payment timelines to ensure the whole deal fits together seamlessly.

Key Takeaway: Training is ongoing, but true mastery comes when loan officers see the bigger picture and feel confident navigating the documentation, relationships, and structuring details unique to construction lending.

The Nuances of Construction Agreements: Fixed Price vs. Cost-Plus Contracts

One major topic Mitzi dives into is the difference between fixed price and cost-plus contracts. Post-pandemic volatility has introduced more cost-plus contracts—a model where borrowers bear more risk because builders pass on fluctuating costs. Mitzi’s wisdom here is invaluable: lenders can still support cost-plus contracts, but must do so with risk mitigation strategies, such as:

• Requiring extra contingency funds in the budget (often 10-15%)
• Insisting on sufficient borrower reserves (6-12 months of payments)
• Deeply evaluating the builder’s experience and reputation
• Proactively educating borrowers on the risks and mechanics of cost-plus contracts

Negotiation best practices include always asking if builders can shift to a guaranteed max price or a fixed price model, sometimes by increasing contingencies. If not possible, overlaying more stringent requirements helps lenders—but also keeps borrowers safe from unexpected budget overruns.

Key Takeaway: Whether fixed price or cost-plus, managing risk goes beyond reviewing numbers—it’s about understanding builder practices, contract types, and ensuring your borrower is truly prepared for the unexpected.

Risk Evaluation and The Art of Saying “No”: Protecting Borrowers and Your Business

Mitzi is clear that construction lenders must be both sales-minded and risk-averse. “Every loan matters,” she says, but not every file deserves a “yes.” Sometimes, saying “no” is the ultimate act of discipline and professionalism. This means closely scrutinizing budgets and builder packages, ensuring reserves are sufficient, and avoiding deals where borrowers might end up in financial distress.

Mitzi advocates for reviewing builder bids and cost packages whenever the situation calls for extra due diligence. Builder experience is key: more seasoned builders present less risk, so understanding the builder’s historical performance is part of every decision to move forward—or not.

Crucially, she emphasizes the importance of explaining why and how you say “no”—to both customers and colleagues. Education on risk, collateral, and statutory requirements like builder’s risk insurance or building permits ensures everyone understands the necessity behind tough decisions.

Key Takeaway: Risk management is proactive, not reactive; saying no protects borrowers and lenders alike, and transparency about why builds trust—even when you deliver disappointing news.

Managing Change Orders and Draws: Eliminating Surprises During the Build Phase

One practical pitfall Mitzi addresses is how and when to manage change orders. Too often, surprises surface at the end of a build, leaving borrowers scrambling for funds. Mitzi’s best practice is true-up at every draw, not just at project completion: this means integrating change orders into the loan process as soon as they occur, updating budgets, documenting adjustments, and requiring signed change orders from both builder and borrower.

Mitzi also points out the importance of direct payments for materials with long lead times, like doors and windows. Instead of advancing funds to builders, paying vendors directly ensures that the borrower’s assets are protected if issues arise.

Key Takeaway: Active management and documentation of change orders and draws prevents costly surprises and keeps everyone accountable throughout the construction lifecycle.

The Industry’s Biggest Opportunity: Securitization and Sale of Construction Loans

In the podcast’s final stretch, Mitzi discusses her wish for the future of construction lending: allowing conventional, FHA, and VA one-time close loans to be securitized and sold to agencies immediately after closing and funding. Currently, this isn’t possible—lenders must wait until the home is complete and the loan is converted before sale.

The impact of a change? Massive. It would increase lender profitability, reduce rate risk (the uncertainty during the build phase when rates can change), and make construction lending more attractive to new and smaller lenders. Borrowers would benefit from increased confidence in rate and quicker access to funds for their permanent loan.

Key Takeaway: Policy changes enabling early sale and securitization of construction loans would be a game-changer, driving more competition, innovation, and affordability in construction lending.

Conclusion: The Value of Experience and Continuous Learning

The landscape of construction lending is always shifting. As Mitzi notes, there’s no formal school for these skills; professionals learn by doing, through mentorship, podcasts, and constant curiosity. Even the most experienced leaders are always discovering new nuances and best practices.

Mitzi encourages anyone intrigued by construction lending to reach out—whether for advice on risk management, profitability, or learning the ropes. True success in construction lending comes from building relationships, mastering documentation, mitigating risks, and educating both yourself and your clients.

Social Links

LinkedIn