Show me the money.....As funding slowly loosens up, it will help to know what options you can offer your customers.
Credit card: Though convenient, especially for small repairs, Kathy Shertzer, oc ce manager and gatekeeper at DuKate Fine Remodeling, in Franklin, Ind., warns remodelers to be wary. Fees tied to mileage and other perks add up fast. “When we reviewed our overhead, it was easy to see we didn’t need to be accepting credit cards,” Shertzer says.
Unsecured/revolving credit: Offered by GE Money and Wells Fargo, this type of fi nancing has been widely used by replacement contractors for amounts up to $25,000. In exchange for fees for administration and promotion, qualifi ed contractors can oa er 24-month no-interest loans and other options. The lender vets the consumer’s credit and pays the contractor at project completion.
Construction loan: Consumers typically need credit scores of 720 to 750 to qualify for a loan that replaces the existing mortgage, covering up to 80% of the estimated post-construction property value. The lender requires plans, specs, and a construction budget, and parcels out payments to the contractor based on a completion schedule.
Second mortgage: While a traditional second mortgage is based on current property value, a “home improvement second mortgage” bases the loan amount on the value of the home after the work has been done. Paid in a lump sum, the loan becomes a second lien on the property.
Home equity loan: This is a one-time loan borrowed against the equity that consumers have in their home. A Home Equity Line of Credit (HELOC) is a revolving line of credit with an adjustable interest rate. It’s more dic cult to get lines of credit now because of the recent drop in home values in many markets.
203(k) rehab loan: Backed by the Federal Housing Administration, this loan goes toward the cost of purchasing (or refinancing) and remodeling an existing home. The loan amount is tied to the value of the property after renovation and the loan-to-value ratio, traditionally 80%, may go as high as 110%. Although luxury products are not covered, many types of improvements qualify.
The consumer must hire a certified consultant, chosen from an offcial list, to check the contractor’s work. The contractor is paid in several draws tied to progress.
Although remodelers have complained about slow payment, payment always comes.
Reverse mortgage: Available to homeowners age 62 and older, this FHA-backed mortgage makes payments to the homeowner, and the loan amount is added to a property lien. The loan is repaid from proceeds on the sale of the home when the homeowner dies or sells or leaves the property.
Andreakos, of Bullfrog Builders, has worked with clients using this type of fi nancing and cautions that “It’s a tough pitch. You know, the owners have to talk to the whole family.”
The Energy Loan : This unsecured installment-based loan from Fannie Mae ranges from $2,500 to $20,000. Many projects are eligible, provided at least $1,000 worth of work is for energy improvements.
Fannie Mae–approved contractors send homeowner applications to one of three approved lenders — ViewTech Financials (Calif.), AMC First (Pa.), and WECC (Wis.) — to get underwriting approval. When the customer signs a completion certificate, the lender pays the contractor. Lenders are paid fixed transaction fees by Fannie Mae, not by the contractor.
Energy Improvement Mortgage: A type of energy-ec cient mortgage, an Energy Improvement Mortgage (EIM) is used to include the cost of energy improvements in the mortgage for an existing home without increasing the down payment.
The additional amount is based on a home energy rating that ties the value of the energy-efficiency measures to estimated monthly energy savings. EIMs are oa ered by federally insured FHA and Veterans Aa airs programs .
Credit card: Though convenient, especially for small repairs, Kathy Shertzer, oc ce manager and gatekeeper at DuKate Fine Remodeling, in Franklin, Ind., warns remodelers to be wary. Fees tied to mileage and other perks add up fast. “When we reviewed our overhead, it was easy to see we didn’t need to be accepting credit cards,” Shertzer says.
Unsecured/revolving credit: Offered by GE Money and Wells Fargo, this type of fi nancing has been widely used by replacement contractors for amounts up to $25,000. In exchange for fees for administration and promotion, qualifi ed contractors can oa er 24-month no-interest loans and other options. The lender vets the consumer’s credit and pays the contractor at project completion.
Construction loan: Consumers typically need credit scores of 720 to 750 to qualify for a loan that replaces the existing mortgage, covering up to 80% of the estimated post-construction property value. The lender requires plans, specs, and a construction budget, and parcels out payments to the contractor based on a completion schedule.
Second mortgage: While a traditional second mortgage is based on current property value, a “home improvement second mortgage” bases the loan amount on the value of the home after the work has been done. Paid in a lump sum, the loan becomes a second lien on the property.
Home equity loan: This is a one-time loan borrowed against the equity that consumers have in their home. A Home Equity Line of Credit (HELOC) is a revolving line of credit with an adjustable interest rate. It’s more dic cult to get lines of credit now because of the recent drop in home values in many markets.
203(k) rehab loan: Backed by the Federal Housing Administration, this loan goes toward the cost of purchasing (or refinancing) and remodeling an existing home. The loan amount is tied to the value of the property after renovation and the loan-to-value ratio, traditionally 80%, may go as high as 110%. Although luxury products are not covered, many types of improvements qualify.
The consumer must hire a certified consultant, chosen from an offcial list, to check the contractor’s work. The contractor is paid in several draws tied to progress.
Although remodelers have complained about slow payment, payment always comes.
Reverse mortgage: Available to homeowners age 62 and older, this FHA-backed mortgage makes payments to the homeowner, and the loan amount is added to a property lien. The loan is repaid from proceeds on the sale of the home when the homeowner dies or sells or leaves the property.
Andreakos, of Bullfrog Builders, has worked with clients using this type of fi nancing and cautions that “It’s a tough pitch. You know, the owners have to talk to the whole family.”
The Energy Loan : This unsecured installment-based loan from Fannie Mae ranges from $2,500 to $20,000. Many projects are eligible, provided at least $1,000 worth of work is for energy improvements.
Fannie Mae–approved contractors send homeowner applications to one of three approved lenders — ViewTech Financials (Calif.), AMC First (Pa.), and WECC (Wis.) — to get underwriting approval. When the customer signs a completion certificate, the lender pays the contractor. Lenders are paid fixed transaction fees by Fannie Mae, not by the contractor.
Energy Improvement Mortgage: A type of energy-ec cient mortgage, an Energy Improvement Mortgage (EIM) is used to include the cost of energy improvements in the mortgage for an existing home without increasing the down payment.
The additional amount is based on a home energy rating that ties the value of the energy-efficiency measures to estimated monthly energy savings. EIMs are oa ered by federally insured FHA and Veterans Aa airs programs .
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