A roof is one of the critical components of your home. If it’s leaking or damaged, you must repair or replace it as soon as possible. However, repairing or installing a new roof can be costly. Suppose your emergency fund or savings aren’t enough to cater to it. Chances are you’re struggling to understand the best way to finance a new roof. Fortunately, you can consider various loan options, as seen below. The average roof replacement cost is $5,628 to $11,976, depending on your roof type.
Repairing standard asphalt shingle roofs is cheaper than repairing a slate roof. The location of your home and the roofing services going price often contributes to the eventual cost of the roof replacement project. If you want to repair the roof, you will pay between $378 and $1,699. Instead of sticking with a leaking roof, here are some options you can use for the best way to finance a roof for your home.
Home Equity Line of Credit (HELOC)
A HELOC uses home equity as security. However, it sets up a rotating credit account instead of loaning a lump-sum amount. Borrowers can use their rotation credit accounts as they would a credit card. A home equity line of credit grants you access to 85% of your home’s value, less the mortgage balance. A HELOC allows borrowers to use debit cards or write checks to make payments against the spending limit on their accounts before paying the balance under flexible terms without compromising the minimum monthly payment. Once the draw period elapses, borrowers, must repay the remaining balance using fixed monthly payments or a lump sum.
HELOC’s interest rates often fluctuate and may have low, moderate promotional rates in the first year. After that, borrowers will experience considerable annual interest rate increases. This and the changeable-balance character of all revolving accounts makes it hard to determine the total cost of the home equity line of credit. If you choose a HELOC to cater to
your roof replacement needs, you can use your interest remittances to reduce federal income taxes. Discuss your HELOC needs with a financial expert to determine whether or not you’re eligible.
Home Equity Loan
Also referred to as a second mortgage, a home equity loan leverages your home equity as security that borrowers can repay in fixed installments monthly. A home equity loan repayment often lasts between five to 30 years. To calculate your home equity, deduct the total amount you owe on a mortgage from the home’s overall market value. Suppose you owe $200,000 on a home whose value is $300,000. For instance, the home equity will be $100,000. Lenders usually lend borrowers up to 85% of a home’s value, less the outstanding mortgage balance. Using our $300,000 example, that amount by $300,000 multiply by 85%, amounting to $255,000. You will then subtract the $200,000 from the $255,000 to get $55,000. Before accepting a home equity loan, it’s important to understand that the interest rates are fixed.
Wondering the best way to finance a roof? By using home equity loans for roof repairs, a homeowner reduces the interest they pay on their federal income taxes. However, they have to itemize deductions for that to happen. Consult a financial expert and determine whether it’s possible based on your situation. Using home equity loans for your roof financing needs comes with various drawbacks. For example, they usually have a prolonged approval process than a first mortgage and can take more than three weeks to close. Home equity loans also put your home at risk. You may lose the home if you don’t meet your loan repayments.
Borrowers using the cash-out refinance apply for a new mortgage against their homes depending on all or part of its prevailing market value, repay their current mortgage, and manage the remaining amount as lump-sum credit. Borrowers can use the money as the best way to finance a new roof or for home repairs. A cash-out refinance is ideal if the borrowers can obtain their new mortgage at a lower interest rate than their original mortgage or obtain a fixed interest rate loan instead of a variable interest rate mortgage.
Worth mentioning is that applying for a new loan adds closing charges and more years to the payment timeline. As a result, you end up paying more for the house in the long term than would have been the case under the original mortgage. Obtaining a new wind vented roofing system under this financing option can be worth the additional cost. The cash-out refinance approval process is similar to a home-buying mortgage application. Borrowers must document their expenses and income and wait up to 45 days for approval. However, this period depends on the lender.
FHA Title 1 Loan
Homeowners with insufficient home equity can obtain a Federal Housing Administration (FHA) Title 1 loan. These fixed interest rate loans are designed to finance home improvements and cater to metal roofer charges. Borrowers can access these loans through FHA-authorized lenders. To qualify for this loan, a borrower’s debt-to-income ratio should be 45% or less. This would mean they spend up to 45% of their gross monthly income to service consumer debt like car or student loans and credit card bills. Borrowers seeking over $7,500 must offer their home as security through their mortgage or a deed of trust. Failing to repay an FHA Title 1 loan can cost borrowers their homes.
Federal Housing Administration (FHA) 203(k) Loan
If a homeowner doesn’t have enough equity in their home to cater to local roofer financing, the FHA 203(k) loan can come in handy. FHA-authorized lenders should only issue these mortgages to facilitate home repair financing or purchase new homes. Borrowers can access both adjustable and fixed interest rate loans. There are two categories of 203(k) loans – limited and standard. A limited 203(k) loan caters to repairs amounting to $35,000 and is ideal for many roof restoration tasks. Suppose a roof is overly damaged and requires extensive repairs. Homeowners who want to find the best way to finance a roof and other structural renovations besides the new roof can choose a standard 203(k) loan. This loan allows borrowers to either borrow: the total amount of their home cost and the renovation costs or 110% of the estimated home value once the renovation process is complete.
If you choose the standard 203(k), you must collaborate with an FHA-certified 203(k) expert to be the intermediary between you, the roofing contractor, and the lender. The consultant develops a work schedule for your project, ensures the construction meets appropriate standards, and approves fund release to the residential roofers and other contractors. The cost of developing job specifications for Federal Housing Administration-authorized consultants can be $400 for any repairs costing $7,500 or less. They may also earn $1,000 for tasks costing over $100,000. Consultants often charge extra for inspections done during different project milestones in the project. Borrowers with a credit score of 580 or more qualify for the average 3.5% deposit needed for a 203(k) mortgage. Borrowers whose score is below 580 get 10% of the total amount they borrow.
People using a personal loan to cater to roof renovation fees are likely to pay high-interest rates than those who apply for home equity loans because the loan is unsecured. Annual percentage rates (APRs), which indicate origination fees and interest rates of between 0% and 6% of the overall loan amount, may range from 9.3% for borrowers whose credit score is 760 or higher to 22.16% for borrowers whose score is between 640 and 679. Personal loans don’t put borrowers at risk of losing their homes.
Suppose a borrower doesn’t have sufficient home equity or cash to finance the roof repair or replacement. They can collaborate with a contractor to finance their project, which may be the best to finance a roof for your home. Some homeowners oppose the idea of paying cash for massive home improvement projects. As a result, some roofing companies often assist by providing direct financing to them or via a third-party financing firm. This method can be more straightforward than personal and home equity loans. The process can be executed in-house. A roofing firm that can help its customers with financing is often more reliable than those that don’t. This also means they have a great reputation with their lenders, and customers can trust them to do an excellent roof replacement job. This may be the best way to finance a roof.
Financing a roof repair or replacement project using a credit card should be the last resort. According to the Federal Reserve, the average annual rate for new credit cards is 19.33%. As a result, using this option as the best way to finance a roof can be costly. Suppose the estimated roof repair cost is low, and a homeowner can pay a large sum of the total cost in a year. Financing the roof using the 0% introductory credit card.s average annual percentage rate can be a good option if no other options are available. Homeowners capable of paying the whole balance within a year to 18 months will have worked with an interest-free loan. However, balances remaining past the introductory period are subject to the defined credit card’s interest rate.
An insurance claim is one of the hardest and trickiest means of financing a roof replacement or repair project. If the roof damage cause is known, using this financing option can be easy. For instance, suppose a tree falls on the roof. Here, a homeowner should strive to ensure their insurance company caters to the replacement or repair costs. When the cause of damage is unknown, getting the insurance company to pay for repairs or replacement can be difficult. Insurance payouts for roof replacement and repairs have worsened over time and become nearly unachievable because many homeowner insurance covers hardly cover ordinary wear and tear on a different part of a home’s exterior. In this case, many insurance companies mention poor maintenance or the roof’s age as the reason for denying the claim. Homeowners with convincing reasons for the insurance firm to cater to their roofing projects should consult their insurance agents about a possible claim.
Considerations to Make Before Choosing Roof Replacement Financing
While homeowners should replace or repair their roofs as soon as possible, there are various considerations before embarking on the project to find the best way to finance a roof. For example, collecting multiple quotations gives them various options to compare before making the final decision. Ask for recommendations from friends and family members who have worked with roofing financing firms. Invite different roofing professionals to inspect the roof and give their estimates. Besides their proposals, every financing expert must display their proof of worker’s compensation and a certificate of insurance. Read online reviews before picking a roofing financing expert to ensure there are no complaints about their work performance.
Confirm what the Financing Proposal Entails
Wondering the best way to finance a roof? After collecting quotes from potential financing firms, compare their proposals keenly. Each proposal should have a unit cost per square foot to cater to unforeseen damage. For example, suppose, during shingle replacement, the contractor encounters a rotten plywood sheet that requires replacement. The unit price gives homeowners an idea of the extra cost. A financial firm should include various costs in their proposals, like all materials and labor costs, cleanup and waste disposal, and required building permits by the town, city, or county. The contractor is responsible for acquiring these permits.
Use the Home Warranty where Possible
A home warranty is similar to an insurance policy. Homeowners pay for it, expecting never to use it. The annual premium varies based on the homeowner’s home state and plan. However, it should cater to core home system failures. Home Advisor says home warranty costs can range between $219 and $1,704 annually, but each policy differs. The financing option homeowners choose can change depending on the cost of repairing or replacing a roof. Other factors influencing the cost include the roof’s condition, size, and time of year. Worth mentioning is that roofing firm costs vary depending on the services they offer. Get references before choosing a roofing financing firm and the best way to finance a roof.
Completing a roofing project can be expensive, but numerous financing options make the process affordable. By choosing these options, homeowners can replace or repair their roofs over time with flexible and convenient installments. Working with a financing expert is crucial to choosing the best way to finance a roof for your home.