How to Finance a New Roof
Between a mortgage payment, property taxes and general upkeep, homeowners have enough to worry about. That’s why a pricey, unexpected home repair can be enough to throw their financial world upside down.
“You don’t think of your roof until it leaks. Then you think about it a lot,” Reid Ribble, CEO of the National Roofing Contractors Association, told LendingTree.
Because there are so many factors at play in installing a new roof, Ribble says ballparking the price is nearly impossible. According to Home Advisor, the national average cost to replace or install a roof comes in at about $7,500.
The ideal situation is to pull cash from your emergency fund to weather the storm. The average American household savings account balance is just over $16,400, according to MagnifyMoney, a subsidiary of LendingTree.
But 29% of households still have less than $1,000 saved. If you’re in this camp, there are still several ways to finance a new roof if you don’t have the cash available.
What to do before committing to a new roof
The sooner you get your roof fixed, the better, but don’t let emotions cloud your judgment. Cross these items off your to-do list to make sure you’re getting the absolute best deal.
Get multiple quotes
Like anything else, it pays to shop around. Before you begin gathering quotes, ask neighbors, friends or family to recommend a good company. Ribble recommends going with a reputable local contractor who’s been in business for at least a decade.
“Durability matters because if there’s a problem three or four years down the road, is this contactor still going to be in business?” he said.
Comparing estimates begins with having a few different contractors come to your home to inspect your roof and then draw up a proposal for your review.
If the contractor is unable to provide a certificate of insurance during this time, Ribble says that’s a big red flag. Proof of workers’ compensation insurance is equally important. As a homeowner, you have the right to know who’s working on your property.
Once you have a few quotes in hand, it’s time to really compare those proposals.
Look at what’s included in each price
So what should actually be included in each proposal? First, you should be getting a lump-sum proposal that covers all expected costs. Most pros will also include a unit cost per square foot to cover unexpected damage. Let’s say the contractor tears your roof off and finds a sheet of plywood that’s bad and needs to be replaced. By getting a unit price in advance, you’ll have an idea of what the maximum costs could be on that roofing job.
The following provisions are typically included in the price, according to Ribble, who ran his own roofing company for 35 years before taking the reins at the National Roofing Contractors Association:
- All labor and materials
- Building permits that are required by your local jurisdictions, city or county
- Cleaning up and hauling away all debris and waste
Find out if insurance will pay anything for it
After you have a clear idea of what you’re up against in terms of repairs, check with your insurance company to see if they’ll pick up any portion of the tab. Most of the time, they won’t.
“The average person getting a new roof is going to end up paying for it,” said Ribble, who added that most roofs simply wear out after about 20 years.
Many policies will cover a leak caused by a weather-related event like high wind or hail, but every policy is different and specific exclusions may apply. Angie’s List reports that if the damage can be traced back to improper maintenance on your part, for example, you might be on your own. Additionally, some insurance companies may have strict guidelines around the types of materials they’ll use to repair a leak.
Do you have a home warranty?
Home warranties are kind of like insurance policies — you pay for it hoping you’ll never need it. The annual premium varies depending on your plan and the state you live in, but should cover you if a major home system breaks down. The typical cost, according to Home Advisor, can range anywhere from $216 to $1,401 per year. Ribble says that, generally speaking, the most comprehensive plans are the ones that cost more.
If your roof damage is covered, the only additional money you should shell out is for a service fee to file a claim, usually to the tune of $50 to $75. Again, every policy is different.
The ins and outs of contractor financing
Unless you’ve got the cash on hand, you’ll have to finance your roof repair. Check with your contractor to see what their financing packages look like. Many already have relationships with lenders and may be able to offer an interest-free period or other deals.
“More and more contractors are offering financing because not a lot of people have $10,000 or $15,000 just sitting and waiting in surplus to pay for some of these things, and unfortunately roofing jobs sneak up on people,” Ribble said.
Specific terms and rates vary depending on the contractor and your credit, he said. But the process is relatively quick — typically a credit application that can be done over the phone.
Before you pull the trigger, Ribble suggests asking if the contractor is a member of a local, regional or trade association. It’s a sign they’re probably more engaged in their industry and in tune with local and national regulations.
Then get all the details. If the contractor is offering a no-interest introductory period, what will the interest be like after that point? If it’s sky-high, you may be better off exploring another financing option.
Other options for financing a new roof
Home equity loan
A home equity loan allows you to borrow cash against the value of your home. You keep your existing mortgage and take out a new loan with a fixed interest rate that’s generally lower than credit cards or personal loans. The biggest risk, however, is that if you default on your loan, you could lose your house.
Cash-out refinancing is another way to take money out from your home equity. You essentially refinance your original mortgage with a new interest rate, but you take out a higher amount than what’s needed to pay off your current mortgage. That surplus of money goes straight to you, which you can then use to fix your roof. If you were looking to refinance anyway, you could end up killing two birds with one stone.
“The lender may charge a premium on the interest rate because you’re taking the cash out because the risk is increasing from where you were,” warned Thomas Duffy, a New Jersey-based certified financial planner. “Depending on how long ago you secured that mortgage, you may be increasing your overall interest costs by doing a cash-out refinance, so that might be something to look at.”
FHA Title I loan
Don’t have enough equity to borrow against your home? A Federal Housing Administration (FHA) Title I loan may be your next best bet. These fixed-rate loans, insured by the government, are designed to fund home improvements that substantially improve the home’s basic livability. A roof repair will likely fit that description. These types of loans are available through FHA-approved lenders.
To qualify, you’ll need a debt-to-income ratio that doesn’t exceed 45%, and loans that exceed $7,500 have to be secured by a deed of trust or your mortgage. So just like a home equity loan, defaulting means putting your home at risk.
Taking out a personal loan to cover a roof repair is what Duffy sees as your best worst option. You’ll pay more in interest compared with a home equity loan, but if your only other option is a high-interest credit card, you’ll have to make do.
Personal loans are unsecured, meaning there’s no asset backing them, so lenders generally charge higher interest rates. You can still lock down a reasonable rate if you have great credit.
If approved, you’ll receive the money in a lump sum, then pay it back in fixed monthly installments. The repayment timeline, payments and interest rate are all fixed. Interest rates vary between 3.34% to 35.99%, and some lenders may throw in a 0% to 6% origination fee, but a personal loan could save the day if your roof is in bad shape.
Consider this your very last resort. With average APRs hovering around 16.46%, according to the Federal Reserve, you’ll likely pay the most to borrow money this way.
“Compound interest works for you when you’re saving for retirement, but it also works against you when you’re carrying a balance on your credit card,” Duffy said.
If your roof repair estimate is fairly low, putting the cost on a credit card, then moving the balance over to an introductory 0% balance transfer card could be a good workaround if other options aren’t available. You may have to pay a transfer fee, usually 0% to 3% of the amount transferred, but it makes sense if you can pay off the entire balance within that promotional period. This window typically lasts anywhere from 12 to 21 months.
The bottom line
During the home inspection process before buying a home, be sure to inquire about the roof. That will help you plan ahead.
“If the house was built 10 years ago, you can reasonably assume you’ve got 10 years left on that roof,” Ribble said.
But if the time comes to replace your roof and you don’t have a pool of cash to draw on, exploring contractor financing or leveraging your home equity are often the cheapest ways to finance a new roof. From there, home renovation loans and personal loans are worth exploring.
Fees and rates menioned above are accurate as of the date of publishing