Roof replacement is a sizable expense. In fact, according to Home Advisor, the average roof repair cost is $7,336. Most families are not prepared to face an out-of-pocket expense of this size. When facing such a large expense, you might be tempted to postpone the replacement. However, deep down, you know it is something that needs to be done. So, what are you to do? The good news is that there are more financing options available than you may realize.
File an Insurance Claim
If your roof needs attention because of severe weather, many homeowner insurance policies will cover roof repairs or replacement. You might be able to use your policy’s benefits to cover the cost of a new roof. However, if your roof is suffering from age or lack of maintenance, insurance isn’t an option for you. If you think your roof could qualify for an insurance claim, a qualified roofer can guide you in the process.
FHA Title I Home and Property Improvement Loan
The Title 1 loan program is a government program run by the Federal Housing Administration (FHA). Since the loans are insured by the FHA, the risk to the lenders is reduced. According to Ygrene, a Title I financer, “property owners can get 100% financing based on the available equity in their property and ability to pay, among other factors. The amount financed, plus interest and any applicable fees are then added to your property taxes and paid overtime – on your annual or semi-annual property tax bill, or via escrow as part of your monthly mortgage payment. PACE financing is secured with a continuing lien on your property.” However, you have to keep in mind one very important point. If you fall behind on your payments, your assets can be seized for repayment.
Home Equity Loan
As a homeowner, your home is probably your largest investment. Depending on your situation, you may be able to put that investment to work for you. Taking out a home equity loan with your bank can be a cost-effective financing option for funding your new roof. To understand if this is a viable option for you, you must first estimate your home’s equity. To do this, take the current appraised value of your home and subtract the amount you still owe on your mortgage.
For example, if your home is currently appraised at $300,000, and your mortgage balance is currently $175,000, your home equity is $125,000. According to the Federal Trade Commission, you usually can borrow up to 85% of your home’s equity. So, on home equity of $125,000, you could borrow up to $106,250.
While this seems like a “no-brainer” option, there are some serious repercussions for using your home as collateral. If you fall behind on your payments, you could lose your home. If you still decide to take this route, borrow as little as possible to cover the cost of your roof replacement. This will help ensure you can afford the monthly payments.
Just like with a home equity loan, you can work with a bank to finance your roof work. However, with a personal loan, collateral is not required. Taking that into consideration, personal loans typically require superior credit. With that being said, there are some important points to consider with personal loans- such as shorter loan terms and higher interest rates.
Shorter-term loans: When you have a home equity loan, you often have up to 20 years to pay back the loan. However, with a personal loan, you may only have two to five years. While you may appreciate not having a payment for twenty years, shorter terms mean much higher payments that can overwhelm a monthly budget.
Higher interest rates: If you have stellar credit and a lower debt-to-income ratio, your interest rate could be as low as 4.99%. Conversely, however, struggling credit could see sky high-interest rates in excess of 100% (depending on the lender).
If you have minimal debt, significant income, and top-notch credit, a personal loan may be an option for financing your roof. If not, you may want to explore whether your roofer offers financing opportunities.
Quite often, roofing companies will partner with financing companies to help you pay for your project with predictable monthly payments that don’t require lengthy hours at a bank or your home as collateral. More so, you will typically find more flexible payment terms that offer you more control. Additionally, you can pre-qualify without affecting your credit score to ensure it is the right option for you and your budget. Best of all, the process only takes three steps!
- Complete the loan request: Just answer a few questions to see available rates without affecting your credit score.
- Review loan options: If eligible, you’ll view personalized options from multiple lending partners. You can choose which one matches your needs the best, and then apply with the lending partner.
- Get funded: If approved, you will typically get the funds in your account within 1-3 business days.
In the End…
Finding the money to pay for a roof replacement can be an intimidating experience. However, the good news is, licensed, experienced contractors know how to navigate the process and can guide you along the way. If you have questions, you should always ask! A reputable contractor will be happy to explore your options with you.
If you have questions about financing your next roofing project, we are happy to help! Post your questions below!