Renovating and the Art of Origination
Home remodeling is not a fad, it is an opportunity
By Laura Brandao
This has been an interesting year in the hous- ing market. As of this past June, the number of U.S. Homes for sale was down nearly 45 percent from its peak in 2011, according
to a recent Zillow Housing Market Overview. The com-
petition for existing inventory has been fierce, which
has helped shift buyer mentalities and actions. Where
the focus in the past was often on new construction,
or move-in ready homes, renovation is now far more
accepted within the homebuyer community.
According to Metrostudy’s national Activity Index,
home remodeling hit an all-time high in the first
quarter of 2017. This likely was aided by millennial buy-
ers who are bringing a new vision to homebuying, one
restricted by smaller budgets and guided by outside
influences that have created a more accepting and
creative homebuyer.
Remodeling shows like “Property Brothers,” “House
Hunters” and “Fixer Upper,” plus slews of podcasts,
YouTube videos and social media posts have influ-
enced and educated today’s homebuyer. Borrowers
now realize that renovation is not only an affordable
option but, in many cases, it is the best way to get what
they want.
Site-built homes often cannot provide the affordable
options that today’s buyers are looking for. In fact, as of
this past August, the median price of a new home was
$45,000 higher than it was for an existing home, accord-
ing to the National Association of Home Builders.
Affordability options
This dilemma of new construction not meeting the
demand of the marketplace was a topic of conversa-
tion at the recent Dallas Construction Summit. The
topic of how to get more builders to provide affordable
housing for the next generation of homebuyers was
discussed. For now, renovation, and even the rapidly
evolving modular home market, are options many
borrowers are exploring.
Many buyers, especially young, first-time homebuy-
ers, are looking in a lower price range than most new-
construction inventory offers. Because of this, current
homebuyers — and mortgage originators — are
opening their minds to increase their options.
Watching the “Property Brothers” tear down a wall to
give a home a more open feel, for example, or seeing
the “Fixer Upper” couple replace worn carpeting with
hardwood floors, has made potential buyers more
aware of what renovation can provide.
Renovation has opened a new world of options
and possibilities at an affordable price for today’s
homebuyers. The idea that you must buy a move-in
ready house may be a thing of the past. Renovation is
becoming a big growth area in the industry, and orig-
inators should be prepared to respond to this trend.
Be a strong partner
The key for originators today is to become an expert.
In a marketplace where there is a shortage of inven-
tory — specifically a drastic shortage of affordable
inventory — originators must become invaluable
resources who can guide clients from loan options
through closing and everything in between.
Federal Housing Administration (FHA) 203(k), Fannie
Mae Homestyle, or even Veterans Affairs (VA) reno-
vation loans are the primary options that originators
should learn about so they can educate borrowers
who are looking for renovation-loan guidance. FHA
203(k) renovation loans, for example, had a stigma in
the past of being process-heavy and time-consuming.
Now, it should require the same turn time as any other
type of purchase in the housing market. Originators can
do that if they educate themselves on the proper steps.
It’s not just understanding how to calculate a loan
amount that turns originators into strong partners for
today’s buyer, however. It also requires understand-
ing the full process flow and becoming well-versed
in explaining the nuances and intricacies of the con-
struction process itself.
Similar to a wedding planner, originators should
create a buyer timeline checklist. Tell them exactly
what is going to happen at every step in the process.
Hold their hands and walk them through the nerve-
wracking experience of taking out a mortgage. More
than that, however, originators who are renovation
experts can help their clients get through the process
of qualifying contractors, getting multiple bids and
understanding the work they’re looking to do.
Every one of these loans is unique and different.
Different geographic regions present different per-
mit obstacles. It takes experienced and educated
originator-partners to help buyers navigate the process
in a quicker, easier and more satisfying way.
“It takes experienced
and educated
originator-partners
to help buyers
navigate the
process.”
Without that component, it’s difficult to pull off
seamless and easy transactions. That, in turn, leads
to closing delays and dissatisfied borrowers. A better
educated, more experienced originator can elevate
the process and improve communication with buyers
to help them work with contractors and deal with all
the issues that can come up.
As an added benefit, originators skilled in renovation
loans will likely find that Realtors will begin referring
borrowers to them. An originator who not only can do
the loan, but also understands the entire process flow
and can help guide buyers through the whole process
becomes a stronger partner for Realtors as well as
borrowers.
What lies ahead
The industry is finally coming to grips with the chang-
ing homebuying landscape. Limited affordable
inventory and a new type of buyer with specific needs
requires a certain expertise. If originators don’t avail
themselves of the information needed to master the
products the marketplace currently demands, they are
going to become outdated and unable to take advan-
tage of the current marketplace.
2018 should see renovation experience its greatest
growth ever. Homeowners will continue to stay put
as they realize it’s not affordable to sell and buy else-
where. Instead, it will be better to upgrade and invest
in their existing property.
Next year also will continue to see our industry be
influenced by the needs and demands of millennial
buyers, with their economic restrictions and tremen-
dous exposure to what’s new and possible in a home,
thanks to TV and the internet. In short, originators can
expect what was once unexpected as a norm: The old
need for new will become a nod toward the newly
improved. n
Laura Brandao is chief operating officer at American
Financial Resources (AFR), a leading FHA 203(k) lender for
sponsored originations in the country, and an innovator in
one-time close loans. Brandao is the driving force that has
catapulted AFR Wholesale to the top of manufactured-home,
one-time close and renovation lending in the U. S. Brandao
was nominated to Elite Women of Mortgage in 2014 and
2016. Reach her at laura.brandao@afrcorp.com.
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