Q: Does the remodeler have to pay for the privilege of offering financing?
A: Some lenders require a nominal fee — usually $100 or less — for remodelers to come onboard. From that point on there are usually no costs. The exception is for deferred payment loans. Some lenders allow the remodeler to offer promotions that let customers defer the first payment for a set period — which could be as little as three months or as long as a year. In these cases, the remodeler is charged a fee based on the length of the deferment period.
Q: Does the remodeler make a profit from the loan? If so, must he disclose this to the homeowner?
A: The anti-kickback federal law known as RESPA (Real Estate Settlement Procedures Act) prohibits contractors from making money off finance referrals for secured transactions. However, it doesn’t apply to unsecured transactions, which are generally used for loans below $25,000.
Builder Direct Lending offers a commission to contractors who are willing to do a little extra work. The contractor signs on as an “agent,” and is able to get direct, computer-generated quotes from various lenders without having to talk with a loan officer.
The contractor performs services such as explaining the benefits of various loan products to customers, taking the loan application from the customer, ordering title search, closing, and other services.
“This fulfills the RESPA requirement to earn additional revenue,” according to Terry Gilliland, the company’s vice president of business development. The agent commission is currently one half of 1%. He says that some contractors keep it as income, while others pass it on to customers as a savings.
Q: What are the most common questions customers have about financing and how should they be answered?
A: “Customers always ask about monthly payments,” says Dave Anderson, a regional sales manager with GE Money. He says that a ballpark rule of thumb is that their monthly payment will be about 2% of the total job cost on an unsecured loan and 1% to 1.3% on a secured loan.
Some customers also ask about their obligations if approved. Lenders say that until the customer signs off on the loan they have no obligation to use it.
