Many builders leave financing up to the homeowner, assuming it’s something customers will research on their own. But that approach costs builders more opportunities than they realize, says Jessie Wood, senior business development manager at Lyon Financial.
“Because builders don’t pay financing fees, it’s easy to assume they don’t affect the business,” Wood explains. “In reality, financing fees influence project size, customer confidence, and whether the sale moves forward.”
When homeowners begin researching financing on their own, they’re often introduced to loan options with high borrower fees or structures that weren’t designed for pool projects. If that’s their first impression and they may assume those costs are standard, they may scale back their plans, or decide the project is no longer affordable before the builder can present financing as a solution instead of another hurdle.
High fees cost sales
For every dollar spent on financing fees, you can subtract one dollar from the backyard budget.
Borrower costs often force homeowners to rethink their budgets. Instead of adding a spa, outdoor kitchen, upgraded decking, or premium finishes, they begin looking for ways to offset those expenses. In the worst cases, they do this by reducing the scope of the project or delaying it indefinitely.
“The difference between selling the full project, watching it shrink, or losing the sale altogether may come down to how much of your customer’s budget is consumed by financing fees,” Wood says.
Those fees add up. Some financing programs charge borrower fees as a percentage of the loan amount. Traditional home equity products, such as HELOCs, may also include appraisal costs, closing costs, and lender fees totaling as much as 5% of the loan amount, depending on the lender and the borrower’s situation.
“On a $100,000 project, a 6% borrower fee is $6,000,” Wood says. “As a builder, ask yourself whether you’d rather see that $6,000 added to the project or paid in financing fees.”
So financing not only provides a means to an end for your clients, but they stand to affect the profitability of each project – and, by extension, your company’s year-end results.
“The wrong financing solution competes with the project for the homeowner’s budget,” Wood adds. “The right financing solution keeps more of those dollars in the project, where they belong.”
Questions that protect customer buying power
It’s natural to focus on interest rates when comparing financing solutions, but they’re only one part of the equation.
Origination fees, administrative fees, closing costs, prepayment penalties, and other borrower charges also affect what the homeowner ultimately pays. In some cases, those costs increase the loan’s APR, meaning a loan with a slightly higher interest rate but fewer fees may be the better value.
“The conversation shouldn’t stop at the interest rate,” Wood says. “Builders should understand the types of fees their customers may be charged, because those costs directly affect customer decisions. When homeowners encounter unexpected fees, they often scale back their plans or walk away altogether. Better conversations help prevent both.”
When selecting or evaluating a financing partner, builders should ask a few important questions that take the conversation beyond interest rate:
- Borrower fees: What would my customers pay?
- Repayment terms: How would they affect monthly payments?
- Industry expertise: Is the financing designed for pool and outdoor living projects?
- Customer experience: Are fees, costs, and financing options clearly explained upfront?
By asking these questions, builders can better identify financing partners that keep the customer’s budget focused where it belongs: on the project, not the financing fees.
Take control of the financing conversation
Builders work hard to earn a reputation that brings customers to their business. The financing process becomes part of the customer experience, which reflects on the builder’s reputation. Contractors don’t need to become financing experts, but they shouldn’t leave financing entirely to chance, either. By recommending financing partners they trust and encouraging customers to ask the right questions, builders can protect both the customer experience and the sale.
“Builders have more influence over financing than they realize,” Wood says. “The difference between selling the project and losing the sale often comes down to whether your customer’s dollars go into the project or toward financing fees.”
For more information, visit lyonfinancial.net.
