Home Construction is on the Rise -- Are You Ready?

Single-family building permits rose 14 percent between June 2003 and June 2004. Current conditions provide new opportunities for credit unions to enter or expand their construction-lending program to capture market share and build lasting member relationships.

 
 
The number of single-family building permits rose 14 percent between June 2003 and June 2004, according to the National Association of Home Builders. June's sales were the second strongest ever at an annualized rate of 1.826 million units, according to the Commerce Department.

Home builders are responding to a favorable interest rate environment by rushing to secure funding before rates increase. Current conditions provide new opportunities for credit unions seeking to enter or expand their construction-lending program to capture market share and build lasting member relationships.

A construction loan provides a member with financing to build a house or small business on previously-owned property. The loan has a typical maturity of six to nine months and the opportunity to be rolled over into a permanent mortgage.

"There is a low attrition rate of members going elsewhere for the permanent mortgage," said Rory Jones, COO of High Desert FCU in California ($120m).

Credit unions also can build strategic relationships with the building community. Air Academy FCU in Colorado ($263m) helped builders advertise through its "Prime Partner" program. In exchange, they asked builders recommend clients pursue financing through the credit union. The program was successful and many builders now use Air Academy for all member-financing needs.

Construction loans are more work intensive than other loan types, but the added steps provide more security to a member requesting a construction loan. Appraisers must verify the completion of certain tasks and directly communicate with the builder and member. Most credit unions require builders to fill out an application and agree to a background check. The application typically includes a resume, available lines of credit, and references.

Credit Unions can benefit from this regular communication, according to Doug Welle, a real estate loan officer at Central Minnesota CU ($295m). The credit unions can cross-sell products after learning the interests of the member through casual conversation. Thus, construction loans create an opportunity for the credit union to become the sole financial institution for the member.

 

 

 

Aug. 30, 2004


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