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.