Popular TV shows about repairers and pinball machines have sparked consumer interest in home improvement, creating an opportunity for lenders to specialize in home improvement loans when traditional mortgages are weak.
Renovation refinancing offers lenders a great fallback plan as mortgage origins decline and refinancing activity collapses. Renovation activity has increased quarterly since 2015 and is expected to exceed $ 350 billion in the third and fourth quarters of 2019, according to the Joint Center for Housing Studies at Harvard University.
The growing popularity of HGTV’s remodeling shows could go a long way in this. Programs like “Fixer Upper,” “Love It or List It” and “Property Brothers” averaged more than 8.6 million weekly viewers in 2017 and 2018, up from 5.8 million in 2014, according to Nielsen.
“HGTV highlights the renovation in every episode they do, in a way people never imagined possible. They use the words ‘renovation budget’ in every episode,” said Vincent Nepolitan, national director renovation sales at Planet Home Lending. “They make people think, ‘Hey, how can I do that? What can I do to change and renovate my house? “But you have to understand the business and the program to see the value of what HGTV does.”
Even shows like “Fixer Upper,” which ended its initial airing in 2018, often run much longer in reruns and on video streaming services. And the more Chip and Joanna Gaines walk into people’s living rooms, the more likely they are to research home improvement projects. The shows are certainly a good conversation piece for lenders who want to promote the home improvement loan, which is an all-in-one deal that allows homeowners to use their home equity without taking on a second mortgage. But the product is largely unknown and requires some consumer education.
TV personality Ty Pennington, best known for “Extreme Makeover: Home Edition,” has been a pitchman for the guaranteed rate since 2013. The Chicago-based non-bank mortgage lender has used him in numerous ad campaigns that appear during ‘home improvement emissions.
“It’s one way to promote our brand on the home improvement side,” said Tim Floyd, renovation manager at Guaranteed Rate. “Who doesn’t want to own their dream home? That’s why these shows are so popular. I think it’s the power to have Ty as one of our spokespersons. He’s a good personality. , he has his own show, but most importantly, people want to know how they can renovate and transform their own home. “
However, it is above all the lack of knowledge that is holding back the take-off of this type of loan.
“Home improvement refinancing is underutilized because there aren’t a lot of consumers who know what you can do with home improvement loans,” Floyd said. “Overall, I think this will continue to increase until one of its greatest years, simply because of the lack of available inventory and the age of the housing. It’s just a matter of information reaching consumers. “
Renovation refinancing is considered a rate and a term, resulting in the highest combined loan-to-value ratios. Withdrawals allow a maximum CLTV of 85% based on the value of the existing property. Home improvement loans use the value after completion and, depending on the program, increase the CLTV to 95% or 97.5%.
The loan is especially beneficial for homeowners without a lot of equity, especially buyers who have purchased a home in the past year with funding from the Federal Housing Administration or with a lower down payment. Using the value-on-completion home improvement loan gives the borrower more opportunities to make the necessary improvements without having to withdraw money.
“There are many myths that the refi market is dead and dried up and the pricing environment makes it more difficult,” Nepolitan said. “Look at the programs and options available. What people don’t realize about the home improvement loan is the extent of the financing. FHA, conventional, VA – it doesn’t matter what program it is, they all have a renovation channel. “
Price can be a barrier in some cases.
“Home improvement loans typically have higher prices in general compared to their non-home improvement counterparts,” Floyd said. “The rates are higher because businesses must have their own in-house drafting department. The costs of these loans are higher than traditional loans, but the value you receive is well worth it.”
An upward spike in home improvement refinancing could help lenders avoid having to sell their business or merge with other businesses during an otherwise difficult period in the mortgage industry.
“This will help squeeze margins and [will help] mortgage companies are thinking outside the box. And [it will] helping customers in a way that I don’t think people really understand. Your goal as a mortgage lender or loan officer should be to provide the best product available to the customer, period, ”said Nepolitan.
The appetite for reshaping should remain strong. “There are two reasons for this. Baby boomers have said they intend to age in place. As they get older, it requires accommodations, things like doorknobs, potential wheelchair ramps, bars in the shower, that sort of thing, “Doug said. Duncan, chief economist at Fannie Mae.
Generation X is the second group that would also do some remodeling. “Let’s say that Gen Xers maybe have kids in middle school or high school and would like to progress. But there’s just no inventory, and it’s expensive if they’re in an urban center and in a school district that they love. They just say, “We own the land, we own the first floor, why not tear off the roof and build a second floor?” “That way they don’t break up the family,” Duncan continued.
The baby boomer generation is also one of the reasons that the supply of existing housing is at its lowest for 30 years relative to demographics. Despite recent year-over-year gains, opportunities are limited, especially when it comes to affordable housing. While limited opportunity inhibits first-time home buyers, those who have outgrown their current home have the option to build or move out.