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Definitive Guide: How to Finance a New Roof

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Introduction

If you're like most homeowners, you may be wondering how to finance a new roof, because putting a new roof on your house may be one of the most expensive improvements you can make. Very few updates require so much money at one time to replace something that’s also so critical to the longevity of your home. Roof replacement routinely runs over $20,000, and depending on the size of your house, materials you choose, price of labor, and location it can run double or triple that amount.

Finding a way to finance a roof replacement is a great way to make sure that you save your bank account from depletion while ensuring the viability of your home. Financing is commonplace for large purchases or projects, and it’s no different with replacing or updating your roof.

In this comprehensive article, we’ll do a deep dive into several ways on how to finance a roof. The benefits and drawbacks that are associated with each approach. While your personal situation will ultimately guide you on how to finance a new roof, it’s important to know what your options are so that you have all of the information and resources available when you finally take the steps needed to get your roof replaced. 


Grants  

Sometimes, the government will put out grants that are really just loans with low interest rates or forgiveness terms. These might be an avenue worth exploring, as they don’t put as many restrictions around who can access them and are ways of securing the integrity of neighborhoods inside a given city or district.

The most popular and well known grant that can help with roof replacement is the Weatherization Assistance Program. This program targets low-income homeowners and makes money available for improving the weatherization of their homes. This can be anything from waterproofing to insulation, but roofs certainly fall under the umbrella of this program.

While federal, state or city grants may not be available to you for various reasons, that doesn’t mean private contractors haven’t set up their own grant opportunities. Roofs for Vets aims to replace roofs for frees for our military veterans, a massive gesture to thank those that served. There may be others in your area that do something similar, you’ll need to do some searching to see if any of them would be available to you.

If you live in a historic property, researching grants for your state or city is a must. It is, again, unlikely that the entire cost would be covered, but there may be a few thousand dollars designated for the improvement and preservation of homes that are deemed historically significant. While these homes are generally few and far between, you might be one of the lucky ones who lives in such a property.

As we said above, this avenue will likely be one of the hardest of all to pursue. Very few dollars exist for grants for roofs as they pose no social or environmental threat (unlike, say, lead paint or asbestos). Unless you are in a certain category of homeowner, do your research, but don’t be deterred if you come up empty handed. We’ll cover other, more attainable, financing options below.


Contractor Based Financing

Much like securing financing for a car through the dealership, it’s possible to do the same thing with your roof (depending on the contractor). Plenty of contractors understand that paying $10k or more out of pocket simply isn’t doable for a large chunk of the population, however, that doesn’t mean that all contractors offer financing.

If you’re planning on using a small team of carpenters or a local construction company (that doesn’t specialize in just roofing) it’s likely they won’t have any financing available for you. However, if you go with a specific roofing contractor, they may very well have worked out an agreement with a local bank or credit union that they can make available to you. Sometimes these may even come with special interest rates.

This financing will, almost certainly, be contingent on your credit score and/or equity in your house. The bank or contractor will need to have some way of assessing the risk they take on by loaning you the money to replace your roof. If you have a poor credit score, they may reject you outright or just bump the interest rate on the available financing.

If you’re not sure about using a local roofing company or they don’t have financing available some of the big box stores, such as Lowe’s, offer programs that let you finance a roof through them. The big box store will handle a lot of the details and communication with the contractors while you simply need to make a few decisions about styles and materials. What a big box retailer offers in simplicity they may lack in quality, so be sure that you’re not choosing just based on financing opportunities if you don’t have to. If you live in a smaller city or township, a big box store may not be an option anyway.

It can be hard to secure financing through a contractor if they are a smaller shop, if this is a route you’re looking to pursue, you will likely have to turn toward some of the larger contractors in the area who have the volume and reputation to offer it. Again, the most important point to make here is that research is critical. Spending a little extra time upfront researching your contractors and financing options will ensure that you aren’t footed with a surprise bill later.


Home Equity

A Home Equity Line of Credit (HELOC)  or a Home Equity Loan are incredibly popular way to finance a roof. Millions of Americans tap into their home equity every year to make sure they have the money to pay for projects on their house.

Home equity works when you take the difference of the amount of money you owe on your house and what the appraiser values it at. This invisible line of credit can be used, through a bank, to finance large projects. This money is solely dependent on how much equity you have in your house. If it’s not enough, a bank won’t consider giving you a loan. If you’re a recent homeowner or your house has dropped in value, it may be difficult to pursue this path to replace your roof.

It’s important to know the difference between the two types of loans as well. A HELOC is basically a credit card that requires that you only pay back what you spend. It has a maximum limit of how much you can spend but doesn’t require you to take more than you need. The downside to a HELOC is that the interest rate is not fixed and, much like a credit card, will compound depending on how much you use it for and how much you decide to pay every month. It’s a great solution if you think there will be some unforeseen surprise expenses when replacing your roof (rotten decking, bad insulation, etc…) that you can effectively “charge” to your home equity.

A Home Equity Loan, on the other hand, gives you all of the approved monies in one lump sum payment and that’s the amount you will be required to pay back. This results in a lower interest rate and you can spend the money on largely whatever you want. Just remember, when it’s gone it’s gone and you still will be required to pay it back. It’s important to know that your roofing project will fit into the budgetary constraints of the cash you garnered from the equity in your home. If it runs over, you’ll still have to figure out a way to pay the difference to the contractor.

Whichever one of these means of accessing your equity you decide to go with, know that your banker will be well experienced with them and should be able to give you sound advice. This is also a good place to mention that if you have access to a financial professional you should seek out their advice as early in the process as possible so that they can help inform your decision and they can help you explore all of the financing channels available to you.


Personal Loans

A “personal loan” can mean a few different things depending on the context. It can be a loan you take from a friend or family member, it can be a loan you take from a loan shark or the mob (we recommend against this) or, as we’ll talk about, it can be a (generally non-collateralize) loan from a bank.

Personal loans are also an incredibly popular way to finance a roof and home improvement. If you’re new to the home ownership world and don’t have much equity, a personal loan is a great way to fix your roof. Personal loans often have lower interest rates, but also quicker repayment terms. You may pay more because of interest, but you’ll also clear the debt a little bit faster.

Personal loans are highly dependent on your credit score. If your credit score is too low, a bank generally won’t consider giving you a personal loan because it’s usually non-collateralize, meaning there’s nothing of inherent value to back up the terms of the loan should you fail to repay.

Important note: building your credit might be a first step if your only option is pursuing a personal loan for fixing your roof. Likewise, depending on a few factors, you may not be approved for enough to cover the costs of replacing your roof, which would mean that you’d either have to pay the remainder out of pocket, or look at a second means of financing. We recommend sticking with one source to finance your project as it makes things easier for everyone involved and avoids headaches and uncertainty.

It’s important to be aware that personal loans can come with very high interest rates, making paying them back sting a lot less desirable than HELOCS or Home Equity Loans.

Of course, you can always try to ascertain a loan, personally, outside of a bank. If you’ve got a rich uncle who is willing to spot you the cash to fix your roof, that might be an avenue worth pursuing. However, it’s worth noting that so many people go through banks because there’s a trustworthy system already in place.


Credit Card Debt

Putting a new roof on a credit card can be a high-risk, high-reward scenario if completed properly. It can also be one of the least desirable ways to finance replacing your roof if you’re not careful about paying the debt back.

Credit cards have notoriously high standing interest rates. It’s not uncommon to see a regular bank credit card with 15-25%+ interest rates. If you were to put a $10,000 roof replacement on a card like this, you would pay (on the low end) $1,500/month in just interest! That interest compounds and can quickly spiral out of control to where you’re drowning in credit card debt.

If you’re going to put a new roof on a credit card, you need to have a strategy for paying it back. The risk of spending drastically more money than needed is high and, if you’re not careful, it can add up to the cost of a second roof.

There’s a silver lining with credit cards, however. Plenty of them offer 0% apr for a fixed introductory term (six months, one year, etc…). If you were to open a new credit card (assuming your credit is good and they accept your application), you may be able to put the entire project on the card and not pay any interest.

Credit cards also have maximum limits on what can be spent and still further limits on how much credit their introductory offer applies, too. But if you’re in good credit standing and are willing to open a new card, this is a great trick to pay for your roof without paying any interest.

A common theme in all methods of finance is your credit score. If your credit score isn’t good enough, you’ll likely not qualify for the credit card or you won’t qualify for the introductory rate, making akin to not qualifying at all. If this is the case, you should reevaluate your options and pursue a different course of securing financing. It would be financially deleterious to finance a roofing project on a conventional credit card.

As we mentioned above, you absolutely need to have a strategy for paying off this debt. As soon as your introductory rate closes, you will be on the hook for all the remaining charges and the high interest rates will kick in. The last thing you want is high interest on a high debt load, but if you’re disciplined and want to go with this strategy, it can effectively be an interest-free loan.

Certain big box stores, like Home Depot have hybrids of credit cards and traditional loans that are specifically for projects like this. Be careful to read the fine print as they may tell you that materials have to be purchased from their store which limits your selection and locks you into a certain price for materials.


Cash Out Refinancing

A cash-out refinance is very similar to a home equity loan. Both give you the difference of equity, but a cash-out refinance is consolidated into a new mortgage on your house and the difference is handed to you in cash. Whereas the home equity loan is simply a loan for the difference in equity and principal.

A cash out refinance is simply a new, more expensive mortgage that you received cash from. It’s almost exactly the same as a regular mortgage, but you’re walking away with the difference in value and equity in cash.

It’s important to stress the “in cash” part, because there’s no loan on this chunk of money. You just have it to spend on whatever you want. It’s also almost the entirety of the difference of your equity versus the valuation of your home, which could be a lot of money.

There are a few points to be aware of when going with a cash out refinance. While there’s no limit to how many times you can refinance, you have to pay closing costs every time. This can be anywhere from 2%-5% of your new mortgage note. To try and maximize the amount of money you take home, you want to consider cash-out refinancing less often than more. If your neighborhood is improving or home prices in your area are rising, it’s better to wait to take your cash out as you will get more money when you do. If you know you need a new roof in say, three years, assuming your home value is rising, you should consider waiting so you get more money out of your refinance to pay for the project. Experts also recommend that you stay in your house for at least five years after taking a cash out refinance, otherwise paying the closing costs just might not be worth it.

You might be able to snag a lower interest rate as well with a cash out refinance and kill two birds with one stone. However, if you’re close to paying off your mortgage anyway, then know that you are starting at square one with a brand new mortgage for whatever term you’ve decided to take (15-30 years).

If you’re an established homeowner, have built decent equity in your house, and are going the cash out refinance route, know that you will likely end up with more cash than is needed to fix your roof (assuming a run-of-the-mill roof replacement). You might want to consider tackling several projects to use up the money or have a plan for what you will do with the rest of it.

A cash out refinance is a great option if you’re planning on replacing your roof and want to use extra money for something else. 


Borrowing From a Whole Life Insurance Policy

Borrowing from a whole life insurance policy can work beautifully when absolutely necessary. There are quite a few advantages to taking this route. There’s generally no application process, it doesn’t show up on your credit score, and assuming that your policy allows this and you have enough cash built up, there’s no explanation necessary.

Borrowing from life insurance often comes with drastically lower interest rates compared to personal loans or credit cards. That’s because it’s already your money, you’re basically just taking an advance on it. You also have the freedom to choose your repayment schedule, though the longer you make it, the more interest you pay.

If you fail to repay, however, your payout (whatever your terms are) will be reduced. For most people this is when you die, but your term may stipulate something different. If your loved ones are counting on all of that money, you may want to reconsider dipping in for something as temporary as a roof project.

However, if you’re young, in good health, and have paid in a decent amount to your life insurance policy, then you can seriously consider this as an option for financing your roof project. It’s arguably one of the lowest risk ways to obtain the money for a project of this scale.

Again, it’s very important to pay this back, as other people may be depending on it in the future. If your interest and loan exceed the policy amount, it may lapse and you could be left with nothing. 


Insurance Claim

Insurance claims for a new roof are commonplace. It could be the reason you’re looking at getting a new roof is because of a significant weather event or unforeseen damage to your roof. If that’s the case, it’s likely that insurance will pick up a good portion, if not all, of your roof replacement.

To succeed in getting an insurance claim, there’s a couple of steps you need to take.

  • 1. Make sure that you have your roof professionally inspected either annually or right after a major storm (or other event). They will let you know what it will take to get your roof up to standard and how much they think it will cost.
  • 2. Promptly call your insurance adjuster and keep a log of your communication. This way you can know exactly what was said on what date so you can challenge any under adjustment.
  • 3. Have a contractor present when your insurance adjuster comes to file the claim. Your contractor should be able to make sure that nothing is missed, nothing is under-adjusted, and that everything needing work or replacement is accounted for. Your contractor will also be able to tell you if a certain event lessened the life of your roof, which could qualify it for replacement.

Make sure that you read your insurance policy as well, some claims won’t pay out if you’ve neglected to reasonably take care of your roof. Some even have special exemptions for wind and hail damage. Insurance also might not pay out if you wait too long to file a claim after a storm has damaged your roof.

In short, knowledge of your policy and time are essential when trying to get insurance to pick up the tab on replacing your roof. Failure to acknowledge this could cost you thousands of dollars in what otherwise would be covered repairs.


Go Fund Me

It’s fair to call this a “desperate measure.” GoFundMe is the crowdsourcing funding platform that allows individuals anywhere in the world to contribute to the financial needs of a person or project.

It’s gained a lot of popularity in the last few years with people who need help paying medical bills or financing a specialized education or trip. It relies solely on the generosity of individuals willing to donate their money to whatever project that needs funding.

This being said, this is the most unlikely way of financing your roof, but it can work. In a scenario where you are left with virtually no other options, turning to friends, family members, co-workers or even strangers on the internet, can work.

The process is fairly straight-forward. You set up an account, you list your funding goal online and you invite people via social media or email to contribute to it. GoFundMe, of course, takes a small percentage of the overall donations and you receive the rest of the money people have pledged.

We think this might be a last ditch effort, but if you’re using it to simply offset the costs of your new roof and you think that your network would be open to help finance that, you’ve basically got nothing to lose. You should take some caution to make sure that family and friends know that you are going to be posting your fundraiser so they aren’t caught off-guard and you also want to make sure that this is the time when you truly need their help.

You don’t want to exhaust your network of friends and family with requests for money, but if this is a one-time scenario and don’t plan to use it as your personal piggy bank, then it may be worth looking into further. People are already somewhat skeptical of platforms for crowdfunding, so building trust and confidence in the people you are looking to for donations is a critical component of using Go Fund Me successfully.

There’s no interest rates, repayment, documents to sign or applications to fill out, it’s just gifts of money being directed to your roof replacement fund. While this sounds like a dream come true, getting people to donate is generally harder than it looks and goals are oftentimes left completely unmet. If you are in a dire financial situation already, then you absolutely should leverage the channels and network available to you.


Final Words

In short, there are a lot of ways to finance new roof. From taking out personal loans and using credit cards to refinancing your home or using crowdfunding, there’s a financing resource for every person and every situation. Some options are riskier than others and some more common than not. As we said at the start of this article, re-roofing can be a massive expense and many don’t have the money to pay for it up front, so financing in some regard is likely going to be a key point of consideration for how and when you choose to replace your roof — in fact, it may be the most important consideration.

The initial estimate and cost can seem daunting, but it’s comforting to know that people get new roofs everyday and people from all financial situations find ways to finance their roofing project without putting additional strain on your wallet.

We hope we’ve helped you see your options for replacing your roof more clearly and put some definitions around the strategies available. Whatever path you decide to pursue, make sure you think carefully about the outcomes. Debt is no fun for anyone, but is oftentimes necessary for a project of this size. Give it careful consideration about how it impacts your current finances and other parts of your life.

A roof is one of the most critical aspects of your home, make sure you get it done right and that you aren’t stuck paying for it for longer than you own your home.

If you want to learn more about your options or get a free roof inspection, get a free roof inspection today!

About the Author

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Tim Roberts is a certified project manager, LEAN and TOC practitioner, as well as a successful real estate investor / house flipper. He is a DIY hacker in home improvement and has done every kind of home improvement project you can imagine. He is a content contributor for CTI Roofing.


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