According to MBA stats, mortgage applications for new homes jumped in July by about 5% over last year. Although, Applications decreased by 12% from the prior month.
Overall applications for new construction are on the rise as fewer existing homes are for sale. Year to date apps on new homes are running around 7% higher than the same period last year.
With the average loan on one these new homes running around 329,500 dollars, lenders may want to consider targeting these buyers for their mortgages. Many buyers may be a little tight on the down payment at the higher levels and in need of high LTV financing.
Unfortunately, all too many people, especially the Millennial generation, still believe that to purchase a home they need at least 10%, if not 20%, for a down payment. We know well that this is not the case, but do they?
The forecast is for builders to continue to pick up the pace as buyer demand increases. That means more opportunities for those lenders that offer both the products and services to provide financing for these buyers and have the expertise to handle this type of financing. It is a little different.
When financing a construction-to-permanent loan transaction, you need the capability to provide the correct, accurate TRID disclosures, with the operational capabilities and money, to monitor construction and provide periodic inspections and construction advances.
Once construction is completed, you’ll need to either convert the construction loan to a permanent end loan or refinance the property to pay off the construction loan by creating a new mortgage.
These are specialized programs requiring knowledge, technology, and a whole lot of patience. Been there and done that.
Lenders who now offer such programs should do okay for the remainder of 2017, even with a drop off in refi’s and limited existing home purchases.
Those who do not may want to consider adding this type financing to their arsenal. But, be careful because if not done correctly, it could get expensive.
Things change quite a bit during construction requiring revised disclosures and borrower requalification. It can get a little hairy. This type financing ain’t for everyone.
However, if you’re interested in a new business generating opportunity, you might want to consider new construction home purchase lending.
First, make sure you know what you’re doing. You should have the right lending partner, are prepared for some headaches, and have quite a bit of patience. Some of these loans may take up to a year to close.
As it is with anything, there are ups and downs in new construction lending. Just make sure you are well aware of what you’re getting into, have the capable staff, and are willing to do take some risks. But hey, that’s what mortgage lenders do every day.
Lend carefully, my friends.