It’s no secret that higher interest rates have had a negative impact on the housing market. In times like these, builders need to take every opportunity to protect their pipelines while also qualifying more buyers. Choosing the right lender partner can make all the difference in a home builder’s profitability.
When selecting a preferred lender, be sure to consider these five things:
1. Pricing. Mortgage rates vary because each lender has a different appetite for risk and overhead costs. It’s important to price out and compare scenarios with all loan types associated with the subdivision’s buyer profile to determine which lender’s rates will give the most buying power. In an affordability-challenged, rate-sensitive market, a low interest rate can make the difference on whether a prospect is converted to a buyer.
2. Programs. Home buyers prefer a permanent rate buydown over a temporary buydown. According to Black Knight’s Mortgage Monitor, in the third week of January, 57% of buyers who locked in that week paid 0.5 points or more to reduce their mortgage rate, while 3% used a temporary buydown. Not all lenders offer a permanent buydown—a builder should ensure this is part of its lender’s product arsenal. Other desired programs include extended rate locks and one-time close construction to perm.
3. Experience. From a lending perspective, doing builder business is different than doing resale business. It’s vital to work with an originator and operations team that understands the nuances of new construction. A builder’s preferred lender must be able to handle an influx of volume in any market condition.
4. Communication and transparency. A lender can’t control market volatility, but it can control its ability to communicate a builder’s risk with a buyer who may be teetering on qualification. Many lenders offer technology that provides builders with transparency into loan milestones, some of which is in real time. It’s also crucial to regularly review the buyer/loan pipeline.
5. Partnership. Winning teams are created by aligning like-minded individuals. Is your lender as committed to your success as you are? A valuable lender partner cares and strives to bring exposure to your projects.
Keep in mind that a preferred lender functions as an extension of the home builder. As such, the lender should provide outstanding customer service, which never goes out of style.
