Q: I want to remodel my home. How do I start the process of getting a loan?
A: This is a great question. Starting a home remodel can feel overwhelming or confusing (there’s a lot to consider!), but if you break it down, the process can be more manageable.
First, establish your construction team (lender, builder and architect). This group of people will be a part of your life for a long time (as long as 24 months, depending on the complexity of your remodel), so it’s important to do your research and have good communication and trust with the entire team.
After the initial excitement of planning your dream home with your architect and builder, you face the financial question: How am I going to pay for this? At this point you need to meet with a reputable lender who specializes in construction loans. There are a small number of lenders who have deep experience in this field, so narrow down your options, then choose.
For a remodel or build, look for a lender able to issue a “construction-to-perm loan,” which is a one-time close option. A construction-to-perm loan provides funds for the construction duration of the remodel, and then converts to the permanent loan without the need to refinance again.
Once you have identified a lender, interview loan officers (each lender has loan officers working for them who meet with applicants to help manage the application process) to identify one who conveys the lending process with knowledge, experience and understanding.
Schedule a meeting or a construction class to learn how the entire construction loan process works, from pre-application through to completion of construction. Come prepared to discuss the scope of the construction project.
Leaving the meeting or class, you should be able to do four key things.
1. Know your borrowing strength. This number is the result of an estimated financial analysis based on factors such as your income (debt-to-income), assets, cash reserves, source and verification of funds required at funding, credit history, credit score and loan program.
2. Determine your loan amount. Depending on the lender, the total acquisition cost or the value of the completed project (as determined by an appraisal) will determine the total property value a lender uses to help calculate the maximum loan amount. Other conditions may be determined by underwriting and the loan program requirements to establish the approved loan amount.
3. Decide on your builder. A good professional will be able to provide an accurate cost breakdown and timeline. They also come with an understanding of building codes and requirements, knowledge that most amateur homebuilders would need to invest hours of research to obtain. A professional’s ability to read blueprints accurately is extremely important. Another bonus of hiring someone: a general contractor will often provide warranties on the products and work they complete, either personally or through subcontractors.
4. Identify a timeline. The three major factors that play into establishing the amount of time it will take to complete your project typically include obtaining permits, funding of the loan and the availability of the builder. Prior to meeting with your architect, call the permitting office to verify what information you’ll need to provide and the limitations of your build and property. Be sure to get an estimate for timing on permits once your application has been submitted so you can build those dates into your plan. A bit of advice: Work with the revisions as required by the city or county—there will be revisions.
Putting in the time to plan your remodel early may seem like a lot of work, but it will pay off in the long run when it helps the overall remodel process go smoothly. Houses are built on foundations — and at the end of the day, you’ll be glad you laid this foundation of preparation and planning.
Susan Henry is the vice president and branch manager of WaFd Bank’s Lynnwood Branch, a member of the Master Builders Association of King and Snohomish Counties (MBAKS). If you have a home improvement, remodeling or residential homebuilding question you’d like answered by one of MBAKS’s nearly 2,800 members, write to firstname.lastname@example.org.