Financing Your Remodel

What everyone should know about lenders and the value of your remodel

As the saying goes, if money were no object in your remodel, that would put every conversation and decision in a different light. In that world, everyone would be paying cash from duffle bags for houses and cars without a second thought. Utopia.

It's an old question really. The following is a room for rent advertisement from 2 centuries ago: Wanted, in Chatham-place or New Bridge- street, a roomy convenient House . . . Rent no object, if the house is agreeable.—Morning Herald, 4 Jan. 1800.

Unfortunately we don’t actually live in Utopia or anywhere near it. Most of us don’t have $30k in cash laying around for a new bathroom or $70k for a kitchen remodel, or for that matter, $40k for a new car.

Actually, Utopia does exist. But it's in Texas.

So what do we do? Well, we can’t walk to work. You think your commute is long now, imagine standing on the entrance ramp to 35W on a cold February morning with 60 other frozen people.

Nope, we finance it. We pay a little a month for the great utility of a car, which depreciates the second we drive it out of the lot and will be in a junkyard 15 years later.

But we rarely think of doing that for a home remodel, which appreciates in value from day one. Start thinking of it as a $300 a month bathroom payment instead of a car payment, (which doesn’t have a shower by the way).

Don't you love those car commercials where the spouses buy each other Christmas presents in the form of expensive cars as easily as we buy donuts for the gang at work? For these people money is no object and we would certainly like to talk with them too!

Many look at establishing a relationship with a finance company as the last thing to consider. We would like to suggest just the opposite. Talk to a Lender early in the process AFTER talking with your remodeler. Let them help you develop a plan and identify your limits and options. In this volatile market, rates and programs are always changing.

“In most cases just getting the financing in order can take 60 days,” explains Alerus Mortgage Banker Michelle Shull, one of our trusted remodeling financing resources.

“So, I advise homeowners to get out in front of the process and eliminate any delays and disappointments from unforeseen financial hurdles such as lower than expected credit scores. If a credit score needs fixing, the good ones can help you do that,” says Shull.

"We too often have clients come to us and report they already talked to their bank, or a friend who is a mortgage lender, and have the financing all taken care of,” recalls Murphy.

"Then we talk with them about project scope and price and it's always more than they thought or their bank approved. And of course their natural reaction to that is to wonder why we're so expensive. It's totally backwards!"

Not every financial institution gets remodeling. In fact, not all that many actually do get it.

Nor are they likely to understand the vast difference between design/build and the handyman/DIY world in terms of capabilities, quality, and ultimate value delivered. To put it bluntly, they are ignorant of the industry. It’s time to find a qualified lender who gets it and that doesn't have to be the bank you currently use.

Mr. Potter (Lionel Barrymore) from the ageless classic "It's a Wonderful Life." Not your lender of choice.

So, don’t assume your bank understands such things as the current labor and material costs let alone the future value of a remodeled home and expect them to lend accordingly. They are very likely to challenge the cost of any remodel by a professional as being too high because their perspective is all about risk to them not value to you.

Look for a lender that understands construction financing and the value of a professional remodeling company to do the work right and stand behind it.

It’s not just about understanding construction, but having a strong proven relationship with your remodeler. That helps in a number of ways, from streamlining the process and responsiveness, to eliminating unnecessary questions and obstacles.

“Having a great relationship with a knowledgeable lending specialist really is a big advantage to the both homeowner and remodeler,” concludes Murphy.

Lenders who are experts in home remodel financing typically provide a construction loan or “bridge financing” during the build process. This ensures that the Remodeler and his crews can receiver progress payments as the project is completed. This “bridge” loan will then be paid off when the final mortgage is put in place. All of this is seamless and simple and almost feels behind the scene when the right product is used.

Another situation for a bridge loan is when homeowners discover additional things they want to do in the midst of a remodel. It may be something they hadn’t planned on or something they had to cut in the budget, but realize they just can’t live without it, like Cambria countertops instead of laminate, new flooring or some additional windows.

This same kitchen in a low-end laminate would be dramatically different. It would also be around $7,000 less than this Cambria. It would also be for this homeowner far too disappointing to accept.

“I wouldn’t say it happens often, but often enough that we have suggested clients look at a bridge financing solution,” explains owner John Murphy. “This is short-term financing, say for 6-12 months, in order to buy some time for those needed funds to be freed up or come in. Things like tax refunds, or estate settlements. In most cases this is a $5k - $50k amount,” explains Murphy.

Other examples of bridge financing might also include using a credit card, a home equity line or borrowing against a life insurance policy—something most experienced and financially stable remodelers will be able to help you with through their own vendor relationships.

If you think you would just as soon pay $350-$600 a month for an appreciating new bathroom or kitchen as you would a depreciating new or used car, let’s keep exploring the possibilities together.

We’d love to find a way to make your home the sanctuary you can really enjoy and share with others and afford with peace of mind.

Here's how you can save time and frustration during the process of financing your remodel:

  1. Interview and select a trustworthy remodeler and have a frank discussion about budgets.
  2. Start your financing discussion with a lender who offers the right financial product for you and are experienced in working with remodelers. This reduces risk for all and improves the chances for a timely success.
  3. If you are comfortable with the lender and a program that works for you, hire the Design/Build Company to start the Design/Build process, so that the design and costs associated with your project can be produced and provided to your lender for final approval.
  4. After construction starts, if a construction loan is needed, you will need to be involved in authorizing payment releases during the course of construction.
  5. Once construction is completed you will need to sign off on the project, and the final payment to the Design/Build company will be released in conjunction with putting your final mortgage in place.

Talk to us

Call (763) 780-3262 or talk with a professional remodeler about your project.

Schedule a Consultation