What if My Contractor Refuses to Work with a Construction Loan?

Did you know contractors actually hate construction loans? Since these loans will typically cost your contractor more time and money, it’s hard to blame them. But when your contractor actually refuses to work with a construction loan completely, then what do you do? Basically, you have two options.

1. Choose a Different Loan

You do have other options; options contractors actually love—like RenoFi Loans. That’s because they’re way less of a pain than construction loans. Here’s what we mean:

The assumption most contractors make about construction loans that exist today (FHA 203K, Fannie Mae Homestyle, etc.) is that it will require a lot more time and money—which is probably true. That’s because every time your contractor needs more money, they have to make a request with the bank, wait for an inspection, and sign a bunch of paperwork before the funds are released. On top of that, there’s significant money held back by the bank with this process too.

With many of these renovation loans, your bank will hold back some of the funds with each release—or draw—until the end of the project as a means to protect themselves. This “holdback” is 10% of the draw amount, so with up to 5 draws per loan, this really adds up. As a result, your contractor may have to pay out of pocket to finish the job.

With a renovation home equity loan—like a RenoFi Loan—you’re in control of the distribution of the funds and there’s no time-consuming inspections or paperwork to hold your project up. You can start your search for a new loan right here, and when you do find the right financing for you, make sure to communicate your payment schedule with your contractor so you’re on the same page.

2) Find a New Contractor

We always encourage homeowners to get more than one estimate, so you’re never in a position where your contractor dictates how you finance your renovation. But if you don’t already have a backup, and you’re set on your construction loan, the other option is to start the vetting process again. In this case, it may be helpful to talk to the bank you are using for your construction loan, and see if they have any recommendations based on who they’ve worked with in the past.

Even with a recommendation, you want to consider contractors that have done a lot of work in your local area of similar size and scope to your project. Friends, family, and neighbors can also be good resources, while third party sites or local Facebook groups can be a good place to see what other people are saying about their recent projects.

For more information on alternative loan options or how to find the right contractor for you, contact RenoFi to discuss your renovation project.

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Other information you may be interested in...

  • 3 Reasons You Shouldn’t Use a Cashout Refinance When Renovating - Refinancing can often be a dumb way to pay for your renovations. If you’re trying to lock in a significantly lower rate, you may be an exception, but for most homeowners, refinancing means throwing money away and getting less out of it. Let us explain. Here are 3 reasons why you shouldn’t use a Cashout Refinance when renovating.
  • The 6 Dumbest Things Homeowners Do When Paying for a Renovation - You’ll have a lot of decisions to make during your home renovation—how to pay for it is probably the biggest. That’s because making an investment in a home you love right now shouldn’t end up costing you for years to come. But too often homeowners make really bad choices when it comes to financing their project, and that’s exactly what happens.
  • Why Contractors HATE Construction Loans - You finally found a contractor, and you’ve started looking for a construction loan. Hold up! There’s something you should know: contractors HATE construction loans.
  • 4 Simple Steps to Your Renovation with RenoFi - At RenoFi we break the renovation financing process into 4 simple steps that will walk you through the initial phase of getting your renovation off the ground. Here is what you need to know...
  • Why are Fannie Mae Homestyle loans better than FHA 203Ks when renovating? - We walk through the notable differences that make Fannie Mae Homestyle Renovation loans the better choice over an FHA 203K for many homeowners when planning to finance a renovation, and why neither may be your best option.
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