The overlooked truth about America’s aging housing population is in the wording — they’re consistently and without fail getting older. And while most people hate getting older, this reality is the exact type of certainty lenders need in the market right now.
From 2009 to 2016, approximately 1.7 million housing units were deemed uninhabitable or obsolete and were demolished and removed from the housing stock, according to the National Association of Realtors. If put back into habitable conditions, those 1.7 million housing units could significantly increase the amount of existing homes available for sale. To put it in perspective, there were 1.46 million homes for sale at the end of the fourth quarter in 2017.
New construction also can’t keep pace with the number of homes falling out of usability, meaning the number of homes eligible for a renovation loan will just keep growing as houses keep getting older. So, time + housing inventory = massive renovation loan potential.
When properly educated on the process, renovation loans help borrowers land a home in today’s tight inventory market, give lenders a much-needed boost to their business, and fix America’s aging housing stock. It’s a triple win.
To successfully navigate these complex loans, find a correspondent partner who can provide exceptional customer service and top-notch efficiencies to make these loans happen with no delays or problems. Go through this renovation loan list of best practices to discover the right type of customer service essentials that need to be delivered to confidently provide renovation loans.
All parties involved need to be on the same page in order to see a renovation loan through to the end. From the beginning conversation with the borrower and contractor to selling the loan to the investor, these best practices will make sure the important requirements and conditions of the renovation loan are fulfilled, so the borrower ends up with their dream home. These best practices include:
Lender to Borrower and Contractor
- Try to get at least three reputable quotes from licensed contractors to assure that no contractor is over or under charging for the same work
- Make sure the contractor provides a detailed estimate that is broken down item by item with labor and material cost
- Verify the contractor’s references and ensure they are aware of and educated about the renovation draw process
- Check with the contractor to make sure they understand the timeline of renovation loans and how to properly follow the bid
- Remind contractors and borrowers that nothing can change without approval from the lender
- Make sure the contractor can financially sustain the project since they don’t get paid upfront
- Confirm that all parties understand that the money in escrow are the only funds available and no changes can be made once the loan closes
- Inform borrowers to not start any additional work on the property with any other contractor or the current contractor for work outside the renovation scope until the project has been completed and closed out
- Verify that borrowers understand what permits and signoffs are required for the home, and at what point of the project the town/city needs to come in for inspections/sign offs
- Ensure borrowers read and understand the homeowner/contractor agreement since it will be referenced if there are any concerns or situations that arise
Correspondent Partner Checklist
- Handle all draws internally to help guide and better control the process, allowing the partner to consistently deliver excellent customer service
- Host a welcome call with the borrower and contractor after the investor buys the loan to see if they have any questions.
- Make sure the borrower was educated upfront (see previous checklist items if they haven’t been) about the loan
- Check in with the borrower every month to make sure everything is running smoothly
- Make sure the borrower and contractor have a single point of contact
- Streamline the process by not requiring any additional HUD disclosures
- Commit to answering emails/communicating within 24 hours
- Accommodate requests and make decisions quickly due to the nimble and fast-moving operational process
- Serve as a go-to resource for any confusion or questions that can crop up during the renovation process since each home has unique needs
Renovation loans represent a tremendous opportunity for borrowers and lenders. Looking at the previous stats, the U.S. could substantially increase the stock of habitable properties, helping more people fulfill their dream of homeownership. Now, with this in-depth list on the best practices for successfully executing a renovation loan, lenders can confidently start chipping away at America’s aging housing population.