The place for a surprise is a birthday party, not a business. This is especially true about surprises where lenders are involved. These types of surprises usually mean only one thing, bad news. These “secrets” will help you avoid problems when you are looking to obtain financing for your projects.
Secret No. 1: Never, Never Assume
The absolutely wrong assumption made by too many contractors is that “as long as I fax a signed credit application, I can get away with not listing all the details.” Lenders have neither the time nor inclination to guess what you mean or to ponder your intentions. And their reaction in this type of situation is simple: Reject the application. Lenders react favorably to clearly stated facts, not to vague assumptions.
- Complete every item
- Always use GROSS not net income
- Provide the full home address and telephone numbers.
- Use the applicants’ full legal name including middle initial
- When interviewing a client/applicant act as if you are meeting for the first time and you’ve been asked to loan him money.
- Bring out all mortgage information — first, second and third. List all title holders to the property.
- As simple as it sounds, fill out the application legibly.
Secret No. 2: Spot a Scam Before it Burns You
Like every profession, financing has a few bad apples — lenders who misrepresent the details, make unfair demands or simply cheat to take financial advantage of contractors. Here are some sleazy scams to watch out for.
- Scam: Approval is given upfront, after which the lender buries you under a pile of impossible stipulations.
- Scam: Approval is flipped into a larger loan, which increases the lender’s profit.
- Scam: Your first few deals are bought by a lender to lull you into a business relationship, and then you get hit with higher credit standards and more stipulations.
- Scam: The lender sells its contracts on the secondary market with constant program revisions.
- Scam: The lender, who also operates a home improvement company, turns your deal down and contacts the client.
- Scam: The lender agrees to a real estate loan that covers his costs but is not enough to fund your client’s home improvement project.
Secret No. 3: Choose the Right Lender
Before submitting your client’s credit application, ask the lender these six questions.
- Do you finance projects in states other than your home state? Here you can find out the lenders’ experience in other areas and knowledge of lending requirements in other markets.
- What types of projects do you finance? Some clients buy only certain projects such as siding or windows. Don’t let yourself be talked into using different lenders for different projects. Find one that finances all home improvement projects.
- Do you only approve applicants with perfect credit? You need to know the underwriting guidelines so you can identify them in the event of a mistake on their part.
- How long have you been in the home improvement lending business? Home improvement lending is different from other types of lending. Be sure they know the ins and outs.
- How long is the wait between submission of the loan and your reply? A delay of any kind can cost you money.
- How do you support the contractor? Some offer time-saving help including training, calculation tools and assistance completing contracts.
Secret No. 4: Minimize the Debt Reported on Loan Applications
The less debt your client’s loan application shows, the closer it will be to being approved and the closer you’ll be to starting a new project. Concentrate on finding ways to eliminate as much debt as possible from the debt to income ratio (DTI), which is studied closely by lenders. You can obtain proof of judgments that have been satisfied but do not appear as satisfied on your client’s credit application. If your client has co-signed for a loan, it will show up as debt for them even if payments are being made on time. Obtain a listing that proves the designated borrower is paying as scheduled. The loan payments can then be removed from your client’s application. If the client is self-employed, his or her tax returns can help eliminate debt.