What Are The Main Benefits Of Construction Lending Over Corporate Loans?

Earlier, community banks have dominated the construction lending industry. Many types of financial organizations and  construction lenders can benefit from offering a construction loan program. There is a massive market of borrowers looking for construction loans. If you are an experienced banker or lender who has never offered a construction product, it might be time to consider setting up a construction loan program.

Apart from it, starting a construction loan program has many benefits for experienced lenders. Let’s look at some of the most compelling reasons why it could help your business.

Powerful Recruiting Tool 

Many financial organizations can benefit from offering a construction loan program, especially when it comes to recruiting. One of the best ways to grow your business is by hiring top talent. The retail origination teams will value the robust offerings of a construction program and the ability to compete in a market that community banks previously dominated.

All the lenders want to be where they are doing more business and have more dynamic product offerings to appeal to customers. Do not lose out on talented originators because you do not have construction loan products.

Increase In Sales With Construction Lending 

Make sure that you do not solely rely on your refi business. Construction loans are a great way to make purchase transactions to stabilize your sales force during fluctuating interest rates. It is possible when refinance business is most volatile. Thus, you can stay ahead of the competition by creating your market with purchase transactions like new home construction loans and rehab loans.

Additional Fee Income 

Remember that construction loans are riskier than conventional lending. It means higher profit margins. As construction lenders, you can also benefit from receiving additional income from a fee on a loan. For example, the typical lender may charge a half-point or a one-point origination fee, which is a bonus you get to pocket.

Reduction In The Housing Crisis 

You should not underestimate the growing market for property inventory around the country. From the 20th century to today, the new construction of single-family homes, condos, and apartment units reached 5.6 million. During that same period, around 1.7 million loans are removed. There is a genuine lack of inventory in the market. The nation faces one of the most significant housing shortages, with low inventory and rising prices driving buyers out of the market. Financial organizations are sitting on a goldmine of opportunity in providing construction loans to new builders. So, you should not wait for business to come to your door, get out and create it.

In-House Is Better Than Downstreet Loans 

If you are already an experienced mortgage lender, many of your current clients might be aware about the procedure for construction loans, renovation, and other loans. If your only option is to refer them down the street to another bank, you lose out on a valuable opportunity. Many borrowers are looking for construction loans. All of these are demonstrated by the high demand from lenders.

You can retain more of your existing customers and capitalize on market share if you offer construction loans. If customers are not getting loans from you, they ask your originators where to go.So, you are essentially losing them directly to your competitors.

Increase In The Net Margin With Construction Lending Loans

During the interim construction phase, your term rates are more favourable. Typically, the temporary interest rate during the construction period on a CTP loan will be a few points higher than the permanent note rate. It is because lenders collect the interest rate spread on loans during the construction period.

If you are offering a one-time construction-permanent loan, then the interest rate will be fixed for both you and your borrower.

Cost Of The Construction Lending Programs 

Last but most important, it is excellent to keep in mind that competitors might be cheaper but not necessarily the best program for the consumer. You have the opportunity to present a product that is exactly right for your customers, even though it might not be as cheap as the loans they can get next door.

For example, you can offer a one-time close product that eliminates the need for a borrower to re-qualify for a permanent or take-out loan. The borrower knows their permanent interest rate from day one.

The Final Words

Thus, these are the benefits of construction lending loans. The collection of information about them is beneficial to build a residential or commercial property.