Besides comparing interest rates and fees, stick with lenders that have worked with remodelers. John Murphy, president of Murphy Brothers Designers and Remodelers of Minneapolis, says most of his customers finance their projects through his sources, but he has had trouble in the past with credit unions that aren’t used to funding home improvements. “We don’t want the project derailed by a lender that doesn’t know what [it’s] talking about. So we only use [financial] products geared toward remodeling.”
Another caveat is to make sure the contract clearly spells out when you will get your money and how.“We have a list of stipulations we expect the bank to follow, including a 30% down payment, payment by wire transfer, commitment to have inspectors at the jobsite within 48 hours after we call for an inspection, and final payment within 10 days of completion,” says Robert Weickgenant, president of Star-Com Design/Build Corp. in Columbia, Md. “If you leave the bank in control of all this, they’ll kill you.”
Q: How many alternate lending sources should you have?
A: Almost all of the remodelers we spoke with had relationships with more than one lender. This enabled them to serve a wider range of customers. For instance, most had a first-tier lender — either a bank or a finance company — along with a second-tier option for credit-challenged customers. (See “Backup Bucks,” page S78.)
Q: Should your primary lender be local or national?
A: Some remodelers say that they get more business by offering multiple sources. That’s because certain customers are more comfortable with more choices. Some customers want local contacts; others are more interested in competitive rates.
However, if you’re a young company your only choice might be a local lender. “They will probably approve you more quickly than a national company,” says Mark Richardson of Case Remodeling in Bethesda, Md. “Then, as your company grows, doors will open to the national companies.” However, a national company might be a good choice if your customers are brand conscious.
Another option is something like the Home Projects Visa card from Wells Fargo Financial Retail Services. The card can only be used to pay contractors and home improvement retailers that are approved for the program. Participating contractors can offer the card to customers, who can then use it to pay for their home improvements. Revolving credit lines up to $25,000 are available to approved cardholders.
Q: Should I work with a mortgage broker?
A: Unlike agents that work with just one lender, a mortgage broker will originate and process loans for a number of lenders.