Repairing damage to your roof is not something to wait on. Not only can roof leaks can cause thousands of dollars in additional damage to the structure and interior of your home, but most insurance companies will deny homeowners coverage if the roof fails to pass inspection. This can result in being unable to obtain new coverage, the cancellation of your current policy, or the inability to sell your home as lenders can deny loans based on the condition.
Roof repairs often come in the form of partial or full replacements, which cost homeowners a national average of $8,169 in 2020, with considerable higher averages in larger cities. Considering that many households do not have the cash to cover these costs upfront, financing can be a great option to get the work done as soon as possible. However, there are many financing options for roof replacements and home repairs, so today we’ll be covering 10 financing methods to help you choose which is best for you.
Before you decide to do any type of financing, we always recommend speaking with your roofing contractor to get a second opinion if you have home insurance and your claim was denied. You can request your insurance adjuster to meet your roofing contractor on site, and many times your roofing contractor can point out damage the adjuster missed, enabling you to get your claim approved. This can save you the entire cost of the roof replacement, minus your deductible, so always take this step first before enquiring about other financing options.
Meeting adjusters on site and providing full service insurance support is standard practice at Brahma Roofing & Construction. By incorporating this into our Roofing process, we’re able to ensure you’re getting the best coverage, service and outcome possible.
Cash or Personal Savings
While this option is not viable for everyone, if you have the funds to do so, paying in cash can end up saving you the most money overall. Not only does this prevent you from paying interest on the financing, but you can actually receive tax credits on a percentage of the total cost of materials if you use qualified energy efficient materials. To receive your credit, you will need to file Form 5695 with your federal tax return.
An important thing to keep in mind when paying cash are additional costs. While your roofing contractor of choice can give you an estimate of what the roof is going to cost, the total costs will not be apparent until the current roof is removed and work is completed. This is due to damage that is not readily visible, such as rotted decking. In insurance claims, these are referred to as supplements, but if you are paying out of pocket, these costs will be added to your total invoice. As such, it’s important to keep these potential costs in mind when deciding to dip into your personal savings, to ensure you have the bandwidth to cover the expense of your total project.
If you have been paying a mortgage on your home for some time, chances are you have built a substantial amount of home equity. This is especially true if your home has risen in value since purchase, as equity is the difference between the fair market value of a property and the outstanding balance of your mortgage plus all liens. (Ex: Home value = $300k, Balance Owed = $200K, Equity = $100k)
Assuming you have good credit and a debt-to-income ratio of less than 43%, home equity can be one of the lowest-interest financing options for roof replacements and other home repairs. Borrowing against your home equity typically comes in 3 forms.
Home Equity Loan
In a home equity loan, also referred to as a second mortgage, the lender provides the borrower with a lump sum payment at a fixed interest rate. Payments are made in monthly installments in addition to your current mortgage payments.
Home Equity Line of Credit (HELOC)
A HELOC functions similar to a credit card. Rather than receiving a lump sum payment, a HELOC gives the homeowner access to a line of credit which can be borrowed against as needed. For example, if your HELOC is $50k and your roof replacement is $15k, you can choose to borrow only the amount needed for your roof. HELOC typically have a variable interest rate, and monthly payments are based on the total balance owed. As you pay off your balance, that amount once again becomes available to borrow against.
In traditional refinancing, your mortgage is refinanced for the same amount owed, typically done for the benefit of lower interest rates for the term of your loan. However, with cash-out refinancing, your mortgage is refinanced for an amount greater than the current balance of your mortgage. After paying off the current balance, you are able to use the remaining amount of the loan however you choose. This is tied to your home equity, because oftentimes the cash-out amount is limited to 80% of your total home value. As this is considered your first mortgage, interest rates are typically lower than Home Equity Loans or HELOC, however, keep in mind that you will need to pay closing costs which can be significant, and cash-out refinancing may only make sense if you are able to get better terms than your original mortgage.
When considering any form of home equity loan be aware that the trade off for better interest rates is putting up your home as collateral. So be 100% sure that you are able to make your monthly payments for the duration of the loan agreement.
If you are uncomfortable dipping into your savings or putting up your home as collateral, a type of personal loan referred to as a signature loan or good faith loan provides homeowners with an unsecured loan. The terms of a signature loan rely largely on your creditworthiness, so it’s often a better financing option for homeowners with excellent credit, as high credit and low debt to income ratios qualify borrowers for low interest rates and no origination fees. While it’s best to shop around for the best rates, we recommend checking with your local credit unions, as they often offer better rates than your standard big bank. If your credit score isn’t great, or if you are simply looking for the lowest interest rates and fees available, a secured loan may be a better option.
Federal Assistance Programs
If your home is in need of repair and other financing options are not viable due to your financial situation and creditworthiness, the Federal Housing Association (FHA) insures loans from FHA approved lenders for expenses specific to home improvements and repairs. This allows lenders to provide loans for first time buyers and low to mid income families that would not otherwise be available through traditional lending services. Below are few different FHA loans that homeowners or home buyers in need of a roof replacement could qualify for.
Title 1 loans are designated for improvements that substantially protect or improve the basic livability or utility of the property. These loans come with a fixed-interest rate, minimum monthly payments, and a maximum loan term of 20 years. For single family homes an unsecured loan of up to $7,500 can be acquired, while a secured loan of $25,000 can be acquired using your property as collateral.
Limited 203(k) Rehab Mortgage Assistance
Similar to Title 1, the 203(k) program is designated for home repairs and available without existing home equity. While Limited 203(k) loans are available at both fixed and adjustable long-term loans up to $35,000, the additional borrowing cap and variable rate isn’t the only benefit. Since Limited 203(k) loans can be financed into your mortgage, this prevents homeowners from dealing with two separate loans. If a homeowner requires over $35,000 in repairs, the Standard 203(k) is an alternative option with a higher loan cap, but comes with significantly more paperwork and requirements.
Property Assessed Clean Energy Program
Currently available in select locations, the Property Assessed Clean Energy (PACE) Program provides upfront funding for qualified energy efficient upgrades such as cool roofs. PACE loans are long term loans that are not based on income, require no minimum credit score, and are repaid as a special assessment/tax on the property’s regular property tax bill. Because PACE loans are attached to the property, they are offered at relatively low interest rates, but be aware that defaulting on your payments could result in a tax lien sale of your home.
In House Financing
In some cases, depending on the size and scope of the project, in-house financing can be offered directly by your roofing contractor. As they already have relationships with lenders and work with them on a regular basis, the terms can be comparable if not better than securing a loan directly through a financial institution. However, in-house financing is not offered by all contractors or for every project, and the terms will vary from contractor to contractor. Even if your roofing contractor doesn’t provide in-house financing, they may have recommendations for local lenders that other customers have worked with, so be sure to speak with them about your financing needs.
Don’t Let Finances Prevent You From Protecting Your Home
If insurance denies your claim and you need additional funds to replace your roof there are plenty of financing options available from financial institutions and government programs such as home equity loans, personal loans, FHA renovation loans, and more. Remember that timely repairs can end up saving you thousands of dollars in preventable damage, so speak to your roofing contractor to learn the extent of the damage, and take advantage of the best financing option for your personal situation to make your home safe for you and your family.
Brahma Roofing & Construction is able to provide project financing for specific projects. If you’re interested in learning more about our internal financing options, click here to get in contact with our team.