Choosing the Best Contractors for Home Renovation Projects

October 3rd, 2009


Choosing the best contractors for home renovation projects is complicated. Below is a true story that illustrates why it is so crucial to carefully choose contractors to do work on your home. Advice: do NOT shop solely by price. Shopping solely or even mostly on price is what gets consumers into most of the trouble they get into with services or products.

SPRING 2009: A client contacted me for a $40,000 Home Equity Line Of Credit (HELOC) for renovations to his home. I gave him some advice on how to secure the best HELOC at another bank, as I did not have any good source for them at that time. Below was an update from him a few months later:

“The home equity option did not work for us. And our contractor owes us a significant amount of money on a botched home extension project. While we have some legal recourse, it will still take significant, immediate financial resources for us to complete the unfinished construction project. We are left with no choice but to decrease significant monthly expenditures to obtain the funds needed to complete construction. I want to talk about a 30 Year Fixed Rate refinance, which will save us money since we are now on a 15 Year Fixed Rate on our primary mortgage”

After my client mentioned that the property is incomplete, I explained that will be a problem, since banks will only lend on completed properties. His house was in the middle of renovations, and almost unlivable. I could not even help him with his refinance. Below is his next reply in FALL 2009:

“Hi Brian,

I called the current mortgage holder. It turns out that they have a special class of mortgages called construction loans and renovation loans. Eventually, a renovation appraiser will come out to the house and estimate the value of the home once the proposed work is complete. Then the existing mortgage may be refinanced to include the cost to complete the unfinished construction.

I am using my existing funds to complete as much of the project as possible, so as little as possible is left up to the imagination of the appraiser. Also, I need to get the 1st floor of my home into livable condition. Hopefully, our attempt at financing into this “Construction/Permanent” loan in November will be successful, and we can start the long process of recovering from our worst ever financial decision.

Regarding the first contractor, our lawyer told us many stories of people being owed in excess of 30K only to settle for 3K. I also have a friend that won judgment against a contractor in court, and obtained a lien against his home, and still ended up with nothing because the contractor allowed his home to foreclose. Therefore, we are negotiating a settlement with the contractor to perform exterior work (under the direction of the current contractor) in exchange for the money/work owed. Well see what happens…

Regards, ___”

This is a real life example of why you must take crucial pains to research your contractors! See this other blog post which offers good ideas on how to source a contractor:

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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