Replacing the roof on your home is not a low cost project and often, roofing issues come up unexpectedly leaving homeowners in a pickle.
On this page, we’ll give an overview of the financing options available along with our opinions and our recommended lenders if applicable.
Do note: Contractor financing for roof replacement is usually the worst option. We elaborate on why further down the page.
Jump To
- Why Contractor Financing is Usually The Worst.
- What Financing Method Is Best
- Government Backed FHA Options
Here we go.
Roofing Company Financing
We’ll start off with this because it is usually the worst.
Most established roofing companies will offer their own financing in-house which is backed by 3rd party banks. Their financing offers are usually very enticing, such as ‘no interest no payments for 16 months’, or ‘get a free _________ (fill-in with service upgrade)’. These deals seem great on the front end and many homeowners often opt for the roofing company financing before considering other options… because they don’t know what we’re about to share.
Here’s the catch behind roofing company financing offers. Roofing companies that offer financing have to pay a ‘closing fee’ to the backing bank, by which they inflate the price of your roof. In other words, you’re just paying more – usually a lot more for that financing.
Here’s what to do instead; if a roofing company offers you financing simply say ‘we’ll shop around’ and then do you own research to find another funding option. Once you have decided on a funding option for the project, ask the roofing contractor for a 20% cash discount, as this is a commonly inflated amount to cover financing costs. This is completely practical as you will be paying the contractor in cash, although loan will be incurred elsewhere.
Some contractors may reject the notion entirely, but many will reply with, well ‘we can’t do 20% but we can do _____ (whatever the amount they building into pricing for financing).
Bottomline, get financing independent of the roofing company, and negotiate a cash discount!
Home Equity Loan:
Homeowners can take out a home equity loan, which allows them to borrow money against the equity they have built up in their home. This type of loan usually has a fixed interest rate and a set repayment term, which can make budgeting easier.
Home equity loans are available for up to 85% of the home value which is more than enough to cover roofing.
Pros: They typically provide the lowest interest rate, and at the longest term.
Cons: The loan approval process can be lengthy, similar to that of a first mortgage, and closing the loan can take two to four weeks. Additionally, home equity loans carry the risk of putting your home at risk. If you're unable to keep up with your roof loan payments, you could potentially lose your house.
Home Equity Line of Credit (HELOC):
A HELOC is similar to a home equity loan, but instead of receiving a lump sum of money upfront, homeowners can access funds as they need them, up to a pre-approved credit limit. HELOCs usually have variable interest rates and flexible repayment terms.
Pros: Using a HELOC to finance a roof replacement offers several advantages. One significant benefit is the flexibility it provides. With a HELOC, you can borrow money as needed and only pay interest on what you use, making it a cost-effective financing option. Additionally, HELOCs typically have lower interest rates than credit cards or personal loans, which can save you money in the long run. Another advantage is that the interest paid on a HELOC may be tax-deductible if you use the funds for home improvements, such as a roof replacement.
Cons: While a HELOC can be a good financing option, there are also some drawbacks to consider. One significant risk is that your home is used as collateral for the loan, so if you can't make your payments, you could risk losing your home. Additionally, HELOCs typically have variable interest rates, which can make it difficult to budget for your payments. There may also be fees associated with opening and maintaining a HELOC, such as annual fees, appraisal fees, or closing costs, which can add to the overall cost of borrowing. It's essential to carefully consider the risks and costs before deciding whether a HELOC is the right financing option for your roof replacement.
Personal Loan:
Homeowners can also consider taking out a personal loan to finance their roof replacement. Personal loans can be secured or unsecured and can have fixed or variable interest rates.
Pros: One significant advantage of using a personal loan to finance a roof replacement is the speed and ease of obtaining the loan. Personal loans are typically unsecured, meaning they don't require collateral, and the approval process is generally faster than other types of loans. Additionally, personal loans often have fixed interest rates and monthly payments, making it easier to budget and plan for the repayment. If you have good credit, you may also qualify for lower interest rates than you would with other types of loans, which can save you money in the long run.
Cons: While personal loans offer several advantages, there are also some drawbacks to consider. One significant disadvantage is that personal loans typically have higher interest rates than other types of loans, that are secured by your home. Additionally, the loan amount you can borrow may be limited, depending on your credit score and income. The repayment terms will also be shorter than other loans, which can result in higher monthly payments.
Credit Cards:
In some cases, homeowners may be able to use credit cards to pay for their roof replacement. However, this option should be used with caution, as credit card interest rates are typically much higher than those of other financing options.
Homeowners with good credit may find cards that have introductory offers of 0% interest for 12 months providing a great option for ‘bridge funding’.
Pros: Credit cards offer convenience, accessibility, and rewards or cashback programs, and some cards have 0% introductory APR periods.
Cons: Credit cards have high-interest rates, hidden fees, and the minimum payment may not pay off the balance in time. These factors can add up quickly and make borrowing more expensive than other options. It's crucial to have a plan in place to pay off the balance promptly to avoid accruing high-interest charges.
What Roof Financing Is Best?
The best financing method for a roof replacement will depend on the homeowner's financial situation, credit score, and preferences.
If a homeowner has a good credit score and significant equity in their home, a home equity loan or HELOC may be the most cost-effective option, as these options typically offer lower interest rates than personal loans or credit cards.
However, if a homeowner does not have significant equity in their home or has a lower credit score, a personal loan or credit card may be a better option. Personal loans typically have higher interest rates than home equity loans or HELOCs but may offer more flexible repayment terms. Credit cards can also be an option but should be used with caution due to their typically high-interest rates.
In some cases, the roofing company may offer financing options that are specifically tailored to the cost of the roof replacement. Homeowners should carefully review the terms and conditions of these financing options, including interest rates and fees, to determine if they are a good fit for their financial situation.
Ultimately, the best financing method will depend on the homeowner's individual circumstances, so it's important to carefully consider all options and compare the terms and conditions before making a decision.
Government Backed Roof Replacement Loans
What are FHA Loans?
FHA (Federal Housing Administration) loans are government-backed loans that are designed to help people with lower credit scores or smaller down payments qualify for mortgages. FHA loans are insured by the government, which means that lenders are more willing to offer them to borrowers who may not qualify for conventional loans.
There are two types of FHA loans, including the FHA 203(k) loan and the FHA Title I loan. Both of these loan types can be used to finance a roof replacement.
FHA 203(k) Loan for Roof Replacement
The FHA 203(k) loan is a type of FHA loan that allows homeowners to finance home improvements, including a roof replacement, as part of their mortgage. The loan amount is based on the value of the home after the improvements are made, which means homeowners can borrow more than the current value of the home to cover the cost of the roof replacement.
To qualify for an FHA 203(k) loan, homeowners will need to work with an FHA-approved lender who will assess the cost of the roof replacement and the other home improvements planned. The loan will cover the cost of the improvements, including the roof replacement, and is rolled into the mortgage payment.
FHA Title I Loan for Roof Replacement
The FHA Title I loan is a type of loan that is specifically designed for home improvements, including a roof replacement. These loans are typically used for smaller projects, such as a roof replacement or new windows, and do not require any equity in the home. However, the maximum loan amount is $25,000 for a single-family home.
To qualify for an FHA Title I loan, homeowners will need to work with an FHA-approved lender who will assess the cost of the roof replacement and the other home improvements planned. These loans do not require any equity in the home, but homeowners will need to have a good credit score and the ability to repay the loan.
Benefits of FHA Loans for Roof Replacement
There are several benefits to using an FHA loan to finance a roof replacement. One of the biggest benefits is that FHA loans are backed by the government, which means that lenders are more willing to offer them to borrowers with lower credit scores or smaller down payments.
Another benefit is that FHA loans typically offer lower interest rates than other types of loans, which can save homeowners money in the long run. Additionally, the FHA 203(k) loan allows homeowners to borrow more than the current value of the home, which can be beneficial if the cost of the roof replacement is significant.