Solve for the Housing Shortage Solution by Offering Residential Transition Loans
The market for the rehabilitation or renovation of existing homes is booming due to a continued tight housing supply.
The United States is currently facing a significant shortage of single-family homes estimated between 4-5 million. This shortfall is due to population growth, home prices, interest rates, tightened mortgage credit, and very limited home inventory that is for sale. In addition, many people are reluctant to move because they have low interest rates on their current mortgage.
As a result, new construction is on the rise comprising one-third of home purchases. What a fantastic opportunity for originators to be a part of the solution by putting new inventory into the market! Not only can you increase your volume, but you get to market yourself as a problem solver at a time when the housing supply remains critically low. On top of that, you can help your real estate investors continue to build long-term wealth through procuring more investment properties.
There is ample opportunity out there. The median U.S. home is decades old, increasing the demand for rehabilitation, energy efficiency upgrades, and modernization projects. A major benefit to originators is that experienced investors are not just building or working on one home project.
They are likely experienced investors managing a growing portfolio in need of a trusted originator with the right loan products that include residential transition loans. As that portfolio grows, so does your volume and relationship with that real estate investor.
Have you adjusted your strategy to meet this demand and keep up with market trends?
If not, now is the time to learn more about residential transition loans and partner with Deephaven to build your business. Deephaven provides residential transition loans through our sister company Anchor Loans. Anchor Loans has funded over $18 billion in loans including thousands of ground-up projects nationwide.
Together we help build long-term partnerships that serve the business goals of mortgage bankers, non-QM lenders, brokers, and private money lenders.
What is a residential transition loan?
A residential transition loan, or RTL, is a short-term loan that allows real estate investors to purchase, build, renovate, resell or rent out an investment property. A key feature of an RTL is the inclusion of a budget for renovation or construction that allows for the funding of the project. Partnering with lenders who are experts in RTLs gives originators access to new construction, fix and flips and the opportunity to work and provide financing to builders, real estate investors and developers.
These business purpose loans serve borrowers who may not qualify for traditional loans due to the rehabilitation or construction needs of the property or other factors.
Why are they so popular in today’s market?
There are many reasons, but one main factor is affordability. Mortgage payments have doubled since 2021, making homeownership increasingly challenging for many borrowers and especially for first-time buyers. As a result, many people decide not to buy and choose to rent longer, increasing the demand for single-family rentals across the country. This is why it is very important for originators to cater to shifting needs of homebuyers and real estate investors.
What are some of the features of residential transition lending?
- Interest only payments during the construction phase
- Transparent and timely draw schedules tied to real project milestones
- Built-in flexibility to modify timelines or refinance as needed
- Increased leverage and loan amounts for experienced real estate investors
- Financing solutions for multi-phase or multi-property projects
- Property types include non-owner-occupied SFRs, non-owner-occupied 2-4 units and California non-owner-occupied up to 9 units.
What are the products / loan types that make up RTLs?
Ground-Up Construction – Ground-up construction loans are short-term financing solutions and designed to cover the cost of building a property, as the name implies, from the ground up. Working with a lender who specializes in this type of loan is crucial due to the complexities that exist in construction. Flexibility in loan terms is key, and lending should be tailored to your borrower’s project scope and timeline.
This loan allows single- and 2-4-unit residential properties. Borrowers only pay interest on the construction funds that are drawn and interest reserves are available.
Fix and Flip Loans – Fix and Flip loans are one of the most popular real estate strategies for real estate investors looking for short-term gains. Investors can buy those ageing homes mentioned earlier, renovate them and resell them for a profit. Fix and Flip loans offer expedited approvals and cover the purchase price and the renovation cost.
Features of Fix and Flip loans include short-term funding, purchase and repair regardless of condition, interest only payments, no penalty for an early payoff, and an efficient draw process.
Bridge Loans – A bridge loan is a short-term financing solution that covers the time between the purchase of a property and the sale or refinancing of another property. They can be beneficial to secure properties quickly especially when an opportunity presents itself that can’t be passed up. No one wants to miss out on a property because they can’t get quick access to necessary funding to act before competitors. Bridge loans can also be used to access equity from completed ground up construction or a renovation project.
By offering residential transition loans, originators can be the real hero by helping to develop or renovate investment properties. Despite ongoing challenges, the U.S. housing market remains full of opportunities for those who adapt. Investors and builders who focus on high-demand markets, rental housing solutions, and strategic renovations will be well-positioned for strong returns in 2025 and beyond. Partner with Deephaven Mortgage to successfully navigate this territory with confidence and assurance.
Let’s Start Building! Reach out to your Deephaven sales representative today or message us here: https://deephavenmortgage.com/contact/
