Mark Berch, of Service Finance Co., in Boca Raton, Fla., says that one of the “misnomers” about home improvement financing is that “right now no one's looking for it” and that consumers are wary of applying for a loan because they might be turned down.
On the contrary, Berch says, many homeowners will easily choose financing if offered a way to do it. Home improvement companies, though, need to be up-front about what could prevent a loan from coming through.
REJECTION REASONS If homeowners can't get financed, the biggest reason is low FICO scores. These FICO scores — calculated using software made by Fair Isaac Corp. — determine how much money lenders will furnish and at what terms. During the housing boom, applicants with FICO scores as low as 620 could get financing. Today it may take a score of 700 or more. “We usually get Yeses at 700,” says Jeff Moeslein, president of Legacy Remodeling, in Pittsburgh. “It's when we get into the 600s that [the application] starts to get questioned.”
FICO scores are “the gatekeeper,” says Brandon Perry, of AMS Financial, a South Carolina company that operates loan portal www.myprojectloan.com. “If you don't have that minimum score, you're dead before you start,” Perry says.
But a great score is no guarantee of approval. Community Builders, in Tulsa, Okla., for instance, recently had several prospects with credit scores of 720 turned down. That's because lending institutions also look at other criteria, such as debt-to-income ratios, i.e., how much the homeowner currently owes relative to household income. A great FICO score can be negated if, for instance, the applicant is maxed out on three credit cards.
A third barrier could consist of financial documents that are public records, such as tax liens, a notice of default in foreclosure, or a bankruptcy filing. Late payments and bad debts could also nix an application.
TAKE CONTROL Few companies are willing to see a sold job go away because the homeowner can't find a way to pay for it. The important thing, company owners say, is to take control of the process. For instance, if Legacy's customer gets turned down by a big national lender, the application is submitted to local banks, where the company has longstanding relationships. At Community Builders, salespeople ask homeowners what their credit score is or request permission to run a credit report.