Renovation lending Q&A

by Contributor01 Aug 2019

Renovation lending is more popular than ever, but there’s a lot to learn for those mortgage originators and borrowers new to the space. Carla Meyers, director of sales support and marketing at loanDepot Wholesale, answers some questions about their offerings.

Q: How does renovation lending fit into the lending programs and services that loanDepot offers through its third-party- origination (TPO) channel?

A: Our Renovation Lending Suite is a complement to our existing agency and jumbo products, allowing brokers the opportunity to offer a wider loan program offering to their borrowers and referral partners.

Q: What are the details of the renovation programs?

A: Renovation programs are designed for individuals that want to rehabilitate, repair, or update a new or currently owned property.

  • Includes funds needed to purchase or refinance plus funds needed for repairs and related expenses all in one loan
  • Low down payment requirements put renovation projects within reach for borrowers who otherwise could not afford them
  • We currently offer FHA’s Limited and Standard 203(k) as well as Fannie Mae’s HomeStyle

Q: How are these different from other lenders’ offerings?

A: Due to the operational complexities of renovation loans, particularly as they relates to post-close project and disbursement management, not all lenders offer them. However, we offer second to none customer service and support throughout the loan process – prior to submission to project completion

  • A designated renovation specialist is assigned to each new renovation loan
  • The renovation specialist is there to answer renovation questions at any time
  • They serve as a liaison, not only with our internal operations staff, such as the underwriter and account manager, but also communicates directly with contractors, consultants, architects, inspectors, etc.
  • If desired they can work directly with the borrower to obtain required forms and clarify construction requirements. We will do as much or as little communicating with others involved in the transaction as the broker prefers.

Q: Were they created from recent demand?

A: These programs have been in existence for a long time. However, as the resale housing inventory in the U.S. continues to age, there is a growing need for renovation lending.

Q: What has the response been this year from these?

A: We have seen a growing interest in renovation lending from the broker community and have made increasing renovation lending awareness a key sales and marketing initiative for 2019.

Q: Certain areas in the country that are booming?

A: We see higher demand for renovation lending in the East, as resale homes in general are older than what we see in the West.

Q: Is there advice for brokers that are not offering these loans, or just looking to get started?

A: Renovation lending is a great way to increase their value to borrowers and referral partners alike.

  • Renovation loans open up more choices to homebuyers by expanding search parameters
  • Not every home is move-in ready and many buyers don’t have the extra funds to upgrade or renovate
  • Home improvements can be personalized - for homebuyers and existing owners
  • Increases property value and builds equity
  • Eliminates need for a construction loan, second mortgage, or use of high interest rate credit cards to fund renovations

Q: What are common misconceptions?

A: The common misconceptions are that the loan amount calculations, additional construction related documentation, and post-close responsibilities will make for a lot of extra work with little to no payoff. Our renovation specialists and many supporting job aids take those concerns away. Additionally, the broker does not have any post-close responsibilities; they get paid at closing and are moving on to the next transaction.

Q: What do they need to inform their agent partners and borrower customers about to help make the loan experience successful?

A: The broker needs to be able to communicate the steps that need to take place prior to loan submission, such as:

  • Purchase contracts must make mention of renovation financing. This is acceptable on purchase contract or as an addendum
  • The property needs to be accessible for contractors, HUD consultants, inspectors, architects/engineers, and appraisers
  • Utilities—power and water—should be on at time of appraisal inspection to avoid additional contingency reserves
  • Forms packages need to be provided to the borrowers, contractors, and consultant

In addition to a comprehensive training video and job aids on our website, our renovation specialists are available to discuss all aspects of the renovation lending process and requirements.