Building a home is typically a lengthy process. Thanks to new technology, it doesn’t have to be.
Austin, Texas-based construction technology company ICON has developed a 3D printing system that can build a home in under seven days and sometimes much less. And while for a 3D home has historically been difficult, announced in May an agreement with ICON to serve as its preferred lender for its 3D-printed residential properties.
Not only will Wells Fargo underwrite for these homes, but it’s also offering a 50 basis-point interest rate incentive to borrowers. And industry experts are calling it a game changer.
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Why Lenders Have Hesitated to Fund 3D-Printed Homes
ICON has been building 3D-printed homes for years. It introduced its first model in 2018. But traditionally, it’s been difficult for buyers to find financing on 3D-printed homes.
As Steven Parangi, licensed mortgage loan originator at Alpine Mortgage Services in Montvale, New Jersey, explains, “The initial lender hesitation was completely understandable. A mortgage is not just a loan to a borrower. It’s also a loan secured by a property. If a lender is unsure how the property will age, whether comparable sales exist, whether insurers will cover it or whether investors will buy the loan, that creates risk.”
“The issue with nontraditional construction has never been the home itself. It is that conventional appraisers struggle to comp it,” notes Joseph Ranola, associate broker at Real Broker in New York.
That’s why Wells Fargo’s foray into 3D mortgages is huge.
“A national lender writing standard mortgages against 3D homes does three things at once,” Ranola says. “It forces appraisers to develop comparable sales methodology. It tells the secondary market this is a financeable asset. And it gives builders the demand signal to scale.”
As Ranola explains, once a major lender writes standard mortgages against 3D homes, appraisers get pushed to build real comparable sales data, which these homes have historically lacked. From there, he says, the secondary market gets a signal that the loans are sellable and insurable.
Once that happens, Ranola says, “Competitors follow, because no large lender wants to cede a new category.”
Parangi says that when a lender the size of Wells Fargo agrees to finance 3D-printed homes, it tells appraisers, underwriters and investors that the valuation risk is acceptable.
“I do expect other lenders to follow, but it will take time,” Parangi says. “If the appraisals are consistent, the homes pass inspection standards, insurance is available, and early loan performance looks normal, more lenders will likely enter the space. I expect the early movement to be concentrated where printed communities actually exist and then spread as inventory grows.”
Ranola agrees. “The timeline is gradual, not overnight,” he says. “I would expect other major lenders to pilot similar programs within the next year or two.”
Alexei Morgado, a real estate agent in Hialeah, Florida, says the decision by Wells Fargo is also “a clear message to the industry that 3D-printed homes have now become acceptable as a means of supply.”
The Advantages and Disadvantages of 3D-Printed Construction
While 3D printed homes may seem like a novelty, they offer several advantages over traditional construction.
“There will be much less time spent on construction, labor used and waste of material,” Morgado says. “When it comes to Florida, where buyers appreciate durability, these buildings are resistant to moisture, termites, winds and maintenance, which is a problem with some other buildings.”
Of course, these homes also have some clear drawbacks.
“The lack of comparable sales results in challenges for appraisers when estimating the value of such homes,” Morgado says. And he cautions that buyers need to be mindful of whether local companies can repair and modify these homes due to their unique construction.
Parangi, meanwhile, says, “A thin resale track record (can create) appraisal risk if you refinance or sell in a few years.”
He also points out that 3D-printed homes share many of the costs that come with building a conventional home, such as roofing, plumbing and electrical.
You need “permits and labor for everything that isn’t printed,” Parangi says. “So while the technology has the potential to improve efficiency, it doesn’t automatically translate into dramatically cheaper homes today.”
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The Insurance Hurdle for Early 3D Homebuyers
Even if buyers can obtain mortgages for 3D-printed homes more easily, there’s still the challenge of insuring them.
Parangi says, “3D-printed homes could be attractive to insurers if the materials perform well against fire, wind, pests or water intrusion.”
However, he notes, “Insurance pricing is based on claims data, replacement cost and repairability. Because this is still a newer property type, some insurers may take a cautious approach until they have more data.”
While Parangi thinks could eventually become a selling point for 3D-printed homes, especially if the structures prove more resistant to certain hazards, buyers may face higher premiums in the near term.
Brad Spurgeon, CEO of Brad Spurgeon Insurance Agency in Texas City, Texas, says he hopes Wells Fargo’s recent announcement will push carriers to solve the problem of insuring 3D-printed homes faster. But for now, there could be challenges.
“Just because a lender is willing to offer a mortgage on a 3D-printed home does not mean a standard carrier will issue a homeowners policy on it at standard rates,” he explains. “Buyers may have no choice but to purchase insurance through surplus lines markets at higher premiums simply because there is no loss history for carriers to price the risk.”
Spurgeon does think traditional underwriting will become available as 3D-printed homes become more prevalent and loss costs are tracked. However, he warns, “The buyers that will be hurt most are those buying now before that loss data exists.”
What to Consider Before Buying a 3D-Printed Home
While it’s becoming easier to finance 3D-printed homes, some challenges do exist.
Morgado says that if you’re interested in a 3D-printed home, research is key.
Buyers “should do their homework first and get their permits, inspections, warranties, engineer’s details, wind certifications where necessary, builder’s history, comp studies and financing, among others,” he says.
Morgado says it’s also important to understand which parts of the house were really printed. In many cases, ICON homes are usually printed only for walls, while roofs, wiring, plumbing, HVAC and other components are still done traditionally.
“It’s important for buyers not to be preoccupied with just the technological aspect of the house but also on its overall performance,” he insists.
Finally, Morgado says, buyers of these homes need to consider the overall cost, and not just . Those costs could include insurance, property taxes, potential HOA fees and maintenance.
“Even with lender credits, the disparity is huge,” Morgado says.
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