Executive Vice President of Mortgage Banking, INDEPENDENT BANK CORP/MI
Independent Bank's EVP of Mortgage Banking, Patrick Ervin, Featured on Hire it Done Radio
Independent Bank's EVP of Mortgage Banking, Patrick Ervin was featured on Hire it Done Radio with Adam Helfman to discuss ...
About Patrick Ervin
Patrick Ervin, Executive Vice President of Mortgage Banking at Independent Bank, appeared on the "Hire it Done Radio" program in September 2019 to discuss home-improvement financing. He stated that Independent Bank is headquartered in Grand Rapids, has operated in Michigan for over 150 years, and is tied for the third largest bank headquartered in the state with approximately $3.2 billion in assets. Ervin noted that rising interest rates have discouraged homeowners with low mortgage rates from moving, leading many to remodel instead. He described the worst financing method as using a credit card due to high interest rates, and the best as paying with saved cash, with bank loans as a middle option depending on equity and credit. Ervin said that loans secured by a primary home offer lower interest rates, while unsecured loans require good credit and ability to repay. He added that Independent Bank assesses the future value of a home after remodeling through appraisals to determine appropriate loan-to-value ratios. Ervin cited that 80% of home renovation projects have a positive return on investment, with kitchen renovations providing the highest ROI, while projects like HVAC and landscaping often leave homeowners feeling they did not recoup costs.
Transcript (38 segments)
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Patrick Ervin0:00
Well, home improvement financing is gratifying because when they're done, you know you have people that have taken their existing home, reinvested, and just are thrilled with where they end up. They've been there a long time, and many times the homeowners have conversations time and time again. Every homeowner has a list of things they'd like to do to their home. I mean, that's just universal. And to see some of those dreams, some of those plans actually come to fruition, is very gratifying.
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Adam Hoffman0:29
Your partner, this is the Hire Time Radio Network. My name is Adam Hoffman. We're joined today in studio by a leader in the mortgage banking industry, Mr. Patrick Ervin, Executive Vice President of Independent Bank, headquartered in Troy, Michigan. Patrick, welcome to the Hire Time Radio Show. Morning, how are you doing?
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Patrick Ervin0:47
I'm doing great. Appreciate it.
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Adam Hoffman0:48
Tell us a little bit about Independent Bank.
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Patrick Ervin0:50
Independent Bank is headquartered actually out of Grand Rapids. It's been in Michigan for over 150 years. It's tied for the third largest bank actually headquartered in Michigan, and it's been here a long time, been doing the right thing a long time. It's about a $3.2 billion bank, so it's fairly significant.
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Adam Hoffman1:08
Yeah, so you got branches all over the state?
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Patrick Ervin1:12
We do. We have over 60 branches throughout Michigan, and we do our lending primarily in Michigan and Ohio.
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Adam Hoffman1:17
Well, you're in Ohio as well. Well, that's kind of cool. So you know, if you've been listening, we've been talking about the cost of what may even seem to be like a simple home remodeling project, right? And you guys are the experts in helping homeowners know how to pay for a new basement bathroom, completely gut remodel the whole house, rather than moving. Or buy a house and remodel, is that an investment?
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Patrick Ervin1:40
Sure. What we're seeing a lot more remodeling taking place, and that's because interest rates have moved up. So people have that interest rate out there. Might be three and a half percent, could it be lower than that even? And if they start looking around, just the cost of money to buy another house, let alone borrow more and build a bigger house, is discouraging them. So they're saying, "If I'm going to spend all that money, what about the place I'm at right now?" And every homeowner has a list of things they'd like to do to their house. It's universal, right? You can go to any party and talk, you know, "What are you doing to your house?" Nobody's house is done. So now they're looking at it and saying, "Let's do this project. Let's make it the way we want it to be here right now, and just thrive where we are."
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Adam Hoffman2:24
You know, it's funny you should say that because I can't agree more. Homeowners come to me and say, "Hey Adam, we're thinking about remodeling, but we want to first look and see maybe we should find a house." And they go through this whole process of looking for a house, and I always say to them, "Great idea, but also remember, if you find a house, there's the cost of moving, packing up your existing house. There's a new school district, there's a whole unknown. And then you get to the new house, and of course there's a whole new list of 'I'm going to upgrade the paint, the flooring, whatever it is.'" So there's always costs involved. Homeowners go through this whole process. I call it a 360-degree. They go, "Let's go look for a house." Look for a house, now let's remodel. And then they say, "You know what? Maybe we'll stay home and remodel." Because homeowners, you know, average stay in house what, seven years? Around there. Good school district, maybe they have sidewalks in their neighborhood, trees are overgrown. It's like they have a comfort zone. So now they say, "Alright, we're going to remodel. Let's gut the house. Let's do this." They already have a mortgage like you said, 3.8 percent, they locked it in 2011 or whenever it was. So now they say, "Alright, we got to do a gut. We want to gut the kitchen, we want to maybe do a basement bathroom like we talked about earlier." They call your bank. You guys can help them?
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Patrick Ervin3:38
Oh yeah.
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Adam Hoffman3:39
So what's the process? I tell homeowners, "Figure out your financing before you get those contractors together." So they call the bank. Is it a mortgage department or what department is it?
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Patrick Ervin3:49
Well, they call us. We have a couple different ways to handle it. But let's start off with kind of the basics. Let's talk about the very best and the very worst way to handle financing.
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Adam Hoffman3:59
Okay.
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Patrick Ervin4:01
Okay, so the very worst way seems obvious, but I can't believe how many people go down this path. The very worst way to do any financing at all is called a credit card. That is not a path for financing. Almost any other path you can take is going to be better than that because of the rates. The rates are crazy. If you buy something with a credit card and pay it off, that's the right way to do it. But if you buy something with a credit card and then plan to make payments on that credit card off in the future, that is the worst possible thing. And the very best financing — I know it undermines my whole industry — but the best thing is to save the money and actually spend cash.
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Adam Hoffman4:37
That's right. That's amazing. The ultimate way.
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Patrick Ervin4:40
But in between that, that's where we find the use for a bank, right? And within that, it depends on really a starting point. Two or three basic things. One is, do you have equity in your home right now? So if you've lived there a long time or we've had some nice home appreciation over the last ten years since the crisis, if you have equity in your home, that's one place to go. That's going to be your next least expensive place to get money from. And if you don't have equity in your home, that doesn't mean that you can't finance a project like this. There are loans that do not require equity in your home. Matter of fact, they're not even a lien on the home, so unsecured loans. We do a lot of those. We have to have decent credit and the ability to repay. Banks like to loan money, but they really like to have that money paid back to them — lower risk.
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Adam Hoffman5:30
Well, that's right.
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Patrick Ervin5:34
So the interest rates can be reflective of the risk. If you have a loan that is secured by your primary home, then your interest rate is going to be lower. And it's going to go higher the less secure that loan is.
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Adam Hoffman5:49
Yeah, and that's what I figured. It makes sense. So you guys at Independent Bank will assess the homeowner's current financial situation and then guide them to the best way to get the loan done. That helps everybody.
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Patrick Ervin6:01
Sure. They come in to us, oftentimes they'll say, "I want to do a remodel project." It's helpful to have a range, to say, "How much do you think it's going to be?" "Well, it's going to be $25,000 to $50,000 or it's going to be $100,000. I want to do something significant." And that'll tell us approximately the type of loan they're going to be in, and then we can take a look at equity and so forth. That's an easy way to do that.
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Adam Hoffman6:29
So they can easily call the bank or go online. What's the fastest way for them to get help?
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Patrick Ervin6:33
The fastest way, well, they can call us. We've got an online line that has experts all the time, even from eight to six on Saturday and Sunday.
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Adam Hoffman6:40
So someone could call today. Do you have the number?
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Patrick Ervin6:42
I do. It's 800-355-0641.
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Adam Hoffman6:47
Alright, cool. Or go online?
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Patrick Ervin6:50
They can go online. It's independentbank.com. They can do everything online. Everyone wants to do everything online.
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Adam Hoffman6:56
It's funny. Alright, Pat, stay with us and help us in our discussion and evaluation of the top remodeling projects that provide the best ROI. It's time for Hire It Done University. Welcome to Hire It Done University. We only teach one subject. Brought to you by Infusion Kitchen and Bath. Infusion showrooms, your imagination is our inspiration. So you're ready to spend some serious money to upgrade your home. We know it's not going to be cheap, but we also know there's some great financing options out there. So let's look at what types of projects have been shown to produce the highest return on investment. This information comes from the 2018 House and Home overview of US renovation in 2017 and 2018 report. Patrick, you've heard of House? Their website, a lot of people are ticked into that, and it makes sense because if you like home improvement, you watch HTV, you're going to want to go to the House website. You're going to want to come to Hire It Done, our website. We have great content there. But here's a couple statistics that I want to reflect upon because I think it impacts the renovation financing that we do. Homeowners who improved home design or functionality, that was the most important reason the homeowner had for renovation projects. 85% of these people in the survey said that, not resale. Because you always think, "Oh, I need a tub in the bathroom because we have to have it for resale. We need a dining room for resale." No, that's not true. It's now for functionality. That's what homeowners want now. However, the flip side of that, improving resale value was an important consideration for two-thirds of the homeowners, so it's still in the mix. But here's the thing: 80% of all home renovation projects have a positive return on investment. So that's pretty nice. So Patrick, you guys loan money for small projects all the way up to big major ones?
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Patrick Ervin8:52
We will go up to $2 million.
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Adam Hoffman8:53
Okay, so that's something that I need to talk to you about. Send my W-2s? I have my people call your people.
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Patrick Ervin9:03
Well, that's funny.
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Adam Hoffman9:05
So homeowners feel they receive the greatest return on investment for the following projects. A kitchen renovation, 83% of homeowners felt they got their money back. Listen, Patrick, we got Thanksgiving coming up. When you have people come over to your house for Thanksgiving, where does everyone hang out? You have a party in the kitchen. So obviously you want to have a nice kitchen, but again, functionality. And when people walk into a house, they see that kitchen. If it looks great, it helps sell it better. So of course master bedrooms, master bathrooms, decks, exterior projects, roofing, siding, windows all received high return on investments. But here's projects that didn't. Other projects, although necessary, left more than half the homeowners feeling like they did not get their money back. And these are the non-sexy projects. I call them heating and cooling. I got a new high-efficiency furnace, big plumbing upgrades, lighting, and landscaping — landscaping is good. So let me ask you a question. When the homeowner comes to you with a request to borrow a bunch of money for any of these projects, let's say a big bathroom, do you consider or consult with them on the potential ROI?
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Patrick Ervin10:16
On the financing side, it depends. We will clarify that for them on a big project. So if it's a project that's going to not just be from the equity in the home, but it's going to be in the equity from the home after it's completed, then we're going to get an appraisal that's going to predict into the future how much the house will be worth. So we will define for them if their ROI is going to be so-so. We'll call it a future value. I got a house, it's $300,000. I owe $280,000 on it. Okay, so I got a little bit of equity, very small. I want to add a $100,000 room addition. So the house is worth $300,000, adding $100,000. You guys got to look at future value. Is it going to be worth $400,000? Over a certain amount of time, right? When the project is complete, what is the value of the home going to be? Because we're going to loan based on the future value. That's how all construction loans are done. You go look at a vacant piece of land, and we're going to make a loan there. We have to project into the future and say our loan-to-value on this project is going to be X. All lenders work that way.
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Adam Hoffman11:21
Give that 800 number out again.
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Patrick Ervin11:23
It's 800-355-0641.
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Adam Hoffman11:28
And the website?
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Patrick Ervin11:32
Independentbank.com.
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Adam Hoffman11:35
Patrick, thanks for coming in today. I appreciate it. Coming up next, our contractor spotlight. We're going to meet Mr. Jeremy Marquart from Santa Clean Air Duct Cleaning in Chesterfield, Michigan. I'm Adam Hoffman. You're listening to the Hire Time Radio Network.