Roof skeleton and chimney

What Roof Financing Options Are Available?

TLDR

What You Need To Know

  • Several types of loans are available to finance your roof’s replacement or repair. You can get a roof loan from a lender or a roofing company
  • You can roll the cost of a new roof into a primary mortgage, second mortgage or refinance
  • Depending on the lender and the type of loan, you may be able to finance your roof project with a credit score as low as 500

Contents

A roof over your head is one of life’s necessities. And when the one currently over your head needs repairs or replacing, it isn’t something to ignore.

Do you know what else will be hard to ignore when the time comes? The cost of repairing or replacing the roof. If your emergency fund isn’t big enough to pay for it, you may be wondering where you’ll get the money to finance your roof project.

The good news is you can take out a loan to pay for the project. And there are several loan options available to cover your new roof installation or repairs. 

We’ll share seven popular roof financing options and their pros and cons to help you decide which type of financing will work best for you.

How To Pay for a New Roof 

The cost of getting a new roof can be enough to make you hit the roof (sorry, we had to). Roofs are expensive projects, even for smaller homes.

Depending on the type of roof, the average cost of replacing a roof is $5,628 – $11,976.[1] For example, it’s less expensive to repair a standard asphalt shingle roof than a slate roof. Your home’s location and the going price for a roofing contractor will contribute to the final cost of your roof replacement project.

If you only need to make repairs, you’re looking at an average cost of $378 – $1,699.[2] 

But there’s no need to walk around your house wearing a raincoat to stay dry. There are several options available to help finance your roof project. 

We have a list of popular roof loans and their advantages and disadvantages.

1. Home Equity Loan

A home equity loan is a type of second mortgage that lets you tap into the equity you’ve built up in your home. 

A lender will typically let you borrow up to 80% of your home’s equity. You’ll receive a lump-sum cash advance you’ll pay back (plus interest) in monthly payments. Home equity loan rates are usually low, though not as low as first (or primary) mortgages. The rates average between 4.16% and 4.70%.[3]

Lender qualifications for a home equity loan will vary. But in general, you’ll need[4]:

  • A minimum credit score of 680
  • A debt-to-income (DTI) ratio no higher than 43%
  • At least 20% equity in your home
  • A steady income

PROS of a Home Equity Loan👍

Low interest rates

Because your home acts as collateral for the loan, interest rates tend to be low, though they likely won’t be as low as the rates for primary mortgages. Your offered rate will depend on your creditworthiness and market rates.

Longer repayment terms

A home equity loan can have a repayment term of 5 – 30 years. So it’s a great choice if you’re looking for a low monthly payment.

Fixed interest rates

A home equity loan usually has a fixed interest rate. Your monthly payment will never change, making budgeting easier than it would be if the loan had a variable rate.

Potential tax benefits

Because you’re using the home equity loan to repair or replace your roof, you can deduct the loan’s interest from your taxes.

CONS of a Home Equity Loan👎

Second mortgage payment

When you take out a home equity loan, you’re adding a second monthly mortgage payment on top of your primary monthly mortgage payment.

Longer funding approval process

It can take 2 – 6 weeks to be approved for a home equity loan. It may not be the best choice if you’re in a hurry to repair or replace your roof.

Risk losing your home

Because your home is the collateral for the home equity loan, if you default on the loan, you’ll risk losing your home to foreclosure.

2. Home Equity Line of Credit

A home equity line of credit (HELOC) is a lot like a home equity loan. It’s a second mortgage that lets you borrow against your home’s equity. The borrowing limit is generally the same: up to 80% of the equity in your home.

But instead of receiving a lump-sum amount, you get a revolving line of credit that allows you to borrow as much money as you need when you need it up to your preset loan amount (or credit limit). The average interest rate for a HELOC is 3.81% – 4.06%.[3] 

The loan term works differently as well. First, there’s a draw period. You can withdraw money during a period of typically 5 – 10 years. You pay back the loan during the repayment period. The length of the repayment period will vary, but it commonly lasts 20 years.

Lender qualifications for a HELOC will vary, but they are similar to home equity loan qualifications. You’ll typically need[4]:

  • A minimum credit score of 680
  • A DTI no higher than 43%
  • At least 20% equity in your home
  • A steady income

PROS of a HELOC👍

Pay interest only on what you borrow

With a HELOC, you only pay interest on what you borrow during the draw period. You pay interest on the entire loan amount with a home equity loan.

Start repaying later

Since many HELOCs have lengthy draw periods, you can access the money for years before you have to repay the loan.

Potential tax benefits

As long as you use the HELOC for a home improvement project, like a roof repair or replacement, you can deduct the loan’s interest from your taxes.

CONS of a HELOC👎

Variable interest rates

HELOCs usually have a variable interest rate, which means the interest rate will fluctuate with market conditions. The rate for your HELOC may start low. And whether it’s a low starting variable rate or a low introductory rate, eventually it will go up. And if interest rates rise, your monthly payments will rise, too.

Longer funding approval process

Like a home equity loan, it can take 2 – 6 weeks to get approved for a HELOC. If your roof needs repairing or replacing ASAP, the wait might be too long.

Risk losing your home

If you default on your HELOC, you could lose your home because your home is the collateral for the loan.

3. Cash-Out Refinance 

A cash-out refinance is another way to potentially fund your roof repair or replacement. 

With a cash-out refinance, you take out a bigger mortgage loan on your home. But it isn’t a second mortgage because the new mortgage pays off and replaces the original mortgage. 

You can pocket the difference between the current market value of your home and what you still owe on your mortgage as a lump sum of cash. And you can use the cash to pay for your new or newly repaired roof. It’s like adding a new roof to your mortgage.

To qualify for a cash-out refinance, lenders usually require[5]:

  • A minimum credit score of 640
  • A DTI no higher than 45%
  • At least 30% equity in your home
  • A steady income

PROS of a Cash-Out Refinance👍

Lump sum of cash

With a cash-out refinance, you get cash out of a new mortgage. And you can spend that money to fix your roof.

Potentially lower interest rate on your mortgage

If interest rates have dropped since you took out your original mortgage, you can save money on interest by refinancing at a lower interest rate.

Refinance a variable interest rate to a fixed interest rate

If your mortgage has a variable rate, refinancing can switch it to a fixed interest rate.

Possible tax benefits

You may be able to write off the interest on your new mortgage if you use the extra cash to repair or replace your roof.

CONS of a Cash-Out Refinance👎

Amount of equity needed

You’ll typically need at least 30% equity in your home to qualify for a cash-out refinance.

Closing costs

Because you’re getting a new mortgage, you’ll pay closing costs, which could negate any savings you’d get from a lower interest rate. On average, closing costs are about 3% – 6% of the loan amount.

Additional years on your mortgage

A cash-out refinance puts you back at day one of your loan term. If the new loan term is longer than the remaining term on your original mortgage, you’ve added years to the amount of time it’ll take to pay off your mortgage.

4. Government-Insured Home Improvement Loans

For homeowners without enough equity in their homes to qualify for a second mortgage or cash-out refinance, a Federal Housing Administration FHA 203(k) or FHA Title 1 loan could fit the bill. Both are government-backed and offered by FHA-approved lenders.

FHA 203(k) loan

This “federal fixer-upper” loan lets you roll the costs of home repairs into a refinance or new mortgage. Use a limited FHA 203(k) loan for home renovations valued at up to $35,000, which, in most cases, should be enough to cover your roofing costs. 

If there is more than your roof on your home improvement project list and you need more than $35,000, apply for a standard FHA 203(k) loan. You can either borrow up to 110% of your home’s anticipated value after the renovation is completed or your renovation costs plus your home’s purchase price – whichever is less.

To qualify for an FHA 203(k) loan, you’ll need[6]:

  • A credit score of at least 580 and a 3.5% down payment
  • A credit score of at least 500 and a 10% down payment
  • A DTI no higher than 43%
  • To borrow a minimum of $5,000

FHA Title 1 loan

The FHA Title 1 home and property improvement loan is not a mortgage. It’s more like a secured personal loan. Your home will be used as collateral to secure the loan. An FHA Title 1 loan doesn’t offer the same flexibility as a personal loan. It can only be used for home renovations that improve the livability of a home – like a new roof.

To qualify for an FHA Title 1 loan, you’ll need[6]:

  • To meet your lender’s credit score requirements
  • A DTI no higher than 43%
  • A maximum loan amount of $25,000 for a single-family home

PROS of an FHA loan👍

Lower minimum credit scores

Lenders will set their minimum credit score requirements. They are typically lower than the minimum credit scores for other loan types.

Higher DTI

The minimum DTI may be higher than it is for other loan types.

Can be used to address other structural issues

You can use the loan to fund more than roof repairs.

Tax benefits

You may be able to write off the interest you paid on your FHA loan.

CONS of an FHA loan👎

Mortgage insurance premiums

All FHA loans require mortgage insurance premiums (MIPs), which will add to the cost of the loan.

Not available from all lenders

Only FHA-approved lenders can offer FHA 203(k) and Title 1 loans.

5. Personal Loan

Consider using a personal loan to fund your roofing project. Most lenders (banks, credit unions or online lenders) offer personal loans. You can use personal loans for almost any reason, including repairing or replacing your roof.

To qualify for a personal loan, you’ll typically need:

  • A credit score in the high 600s to get a favorable rate 
  • A DTI no higher than 36%
  • A strong credit history
  • A steady income

PROS of a Personal Loan👍

No collateral necessary

Most personal loans are unsecured loans, so you don’t have to provide any collateral (like your house) to secure the loan.

Quick funding

Depending on the lender, you can get the money in 1 – 7 days.

Multiple lenders to choose from

Because most lenders offer personal loans, you have lots of lenders to choose from when you’re ready to take out a loan.

CONS of a Personal Loan👎

High interest rates

Because personal loans are usually unsecured loans, their interest rates are typically higher than the rates for other types of loans, especially if you have bad credit. The average interest rate is between 8.77% and 9.85%.[3]

High credit score requirements

To get the best rate, you’ll need an excellent credit score. You can get a personal loan with a lower credit score, but you should expect to be charged a high interest rate.

No tax benefits

In most cases, you can’t write off personal loan interest on your taxes unless you use it for education expenses, business expenses or certain investments.

6. Contractor Financing 

Some roofing companies can offer financing. How? They usually partner with a lender to offer their customers loans to help pay for their roofing projects. The loans are typically unsecured personal loans. Their qualifications, approval timeline and interest rates will be similar to what you’d expect for personal loans.

PROS of Contractor Financing👍

Special deals and promotional rates

Whether the roofer’s loan is a personal loan or a credit card, they sometimes have a low introductory promotional rate. If you can pay off the loan during the introductory period, it can be a cheap way to borrow money for your roof.

No equity required

You don’t need to tap into your home’s equity to qualify for in-house roofer financing.

CONS of Contractor Financing👎

Higher interest rates

Roofing companies are often offering customers repackaged personal loans. Personal loans typically have higher interest rates than home equity loans, HELOCs or cash-out refinances.

Not all contractors offer financing

Your choices for a roofer may be limited because not all contractors or home improvement companies offer in-house financing.

7. Credit Cards

You can use your credit card to finance your roof project. But before you swipe, you should only consider this route if you have (or are planning to apply for) a new card with a low introductory rate and plan on paying off the loan during the introductory period.

Otherwise, you’ll likely have a large balance on your card. The balance may incur late fees and rack up interest charges. And any missed payments will damage your credit score

Qualifying for a credit card will mostly depend on your credit history and income.

PROS of Credit Cards👍

0% APR

Finding a credit card with a 0% APR introductory rate and paying off the balance during the introductory period is like getting free money. You can finance your roof without spending a dime on interest.

Multiple credit card issuer options

There are tons of credit card options out there. Can you find one with a 0% or low introductory rate and reward points? If so, it’s almost as if the credit card company is paying you to finance your roof project.

CONS of Credit Cards👎

Paying high interest rates

Credit cards usually have high interest rates. Remember, several loans could be a better option if you won’t be able to pay the card balance off right away.

Requires a large credit limit

Roof repair and replacement can get expensive. Your card’s credit limit may not be high enough to pay the entire bill.

How To Choose Your Best Roof Loan 

Now that you’ve reviewed some roofing loan options, how do you pick the best one? We’ve got some tips to help you:

  • Review your homeowners insurance policy or home warranty: Your policy or warranty may cover roof damage. If that’s the case, you may not need to borrow as much money.
  • Know your budget: Make sure you know how much your roof project will cost. You don’t want to underestimate and not have enough money to pay your contractor.
  • Shop around for multiple estimates: Get a few cost estimates from different roofing companies. Vet each contractor you’re interested in to make sure they run a reputable business. 

Raise the Roof ’Cuz You’ve Got Options

Replacing or repairing your roof is a big deal – financially or otherwise. Fortunately, there are plenty of ways to pay for it. Should you get a personal loan, use a credit card or apply for a government-backed loan? Review your financing options so you can be confident your choice will cover your needs.

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  1. Home Advisor. “How Much Does it Cost to Replace a Roof?” Retrieved July 2022 from https://www.homeadvisor.com/cost/roofing/install-a-roof/

  2. Home Advisor. “How Much Does it Cost to Repair a Roof?” Retrieved July 2022 from https://www.homeadvisor.com/cost/roofing/repair-a-roof/

  3. National Credit Union Administration. “Credit Union and Bank Rates 2022 Q1.” Retrieved July 2022 from https://www.ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2022-q1

  4. Experian™. “What Credit Score Do I Need To Get a Home Equity Loan?” Retrieved July 2022 from https://www.experian.com/blogs/ask-experian/what-credit-score-do-i-need-to-get-a-home-equity-loan/

  5. Fannie Mae. “Eligibility Matrix.” Retrieved July 2022 from https://singlefamily.fanniemae.com/media/20786/display

  6. Experian™. “How to Get an FHA Loan.” Retrieved July 2022 from https://www.experian.com/blogs/ask-experian/how-to-get-an-fha-loan/

ICYMI

In Case You Missed It

  1. Depending on the type of financing you get, sometimes the interest on a loan to repair your roof is tax deductible

  2. For homeowners without enough equity to qualify for a second mortgage or cash-out refinance, an FHA 203(k) or FHA Title 1 loan could fit the bill

  3. Using a credit card to finance your roof replacement or repair is not highly recommended

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