The 2008-2009 downturn in commercial real estate (CRE) exposed many weaknesses in bank construction lending practices. Since that time, residential construction lending continues to expand slowly, along with the economy, with remodeling maintaining a large share of projects. Into 2020, housing starts have increased, yet construction firms report labor shortages in many skill categories. This program provides an overview of the major issues involved in consumer or residential construction lending, primarily to individuals having a home built or remodeled.
Topics to be covered include:
- What is construction risk and how is it mitigated?
- Differences between residential and commercial construction loans
- What additional due diligence is needed, beyond a conventional mortgage application and underwriting?
- Full construction vs. repair/remodel
- Construction contract and cost estimate issues (Description of Materials form)
- Contractor credentials and qualifications
- Plans and drawings
- Title insurance
- Appraisal issues
- Loan pricing and structuring
- Typical interest rate and fees
- Construction loan agreements
- Issues with draws and inspections, including cost over-runs and lien priority
- How is the construction loan going to end (get repaid)?
Target Audience: Consumer lenders, mortgage bankers, private bankers, small business lenders, commercial lenders, credit analysts, loan review specialists, special assets officers, lending managers and credit officers involved in the consumer lending process. Also intended for support personnel involved in the administration of residential construction loans.