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I know that replacing your roof is expensive but don’t let the cost discourace you. You have many financing options.
In fact, the number 1 question I have received since I started my roofing company was, “How Am I going to pay for this?”.
In this guide, we’ll take you through the factors that influence your roofing costs, a few jargon to help you understand better along the way, and 6 financing options to choose from!
Factors That Influence Your Roofing Costs
Whether you’re paying for a new roof or need cash to cover roof replacement costs, here are 4 reasons why a roofing project comes with a hefty price tag:
- Roofing Materials Used – Shingles come in varying types, e.g., asphalt, metal, clay, concrete, etc. [R] Asphalt is the cheapest option, but with clay or concrete, expect higher financing coverage.
- Geographical Location – The cost of a roof repair in New England has different rates than a roof repair on the East Coast. Each location has varying labor rates and material expenses.
- Roofing Contractor – Not all roofing companies charge the same rate. Some will charge a handsome price due to the quality they offer and experience level.
- The Complexity of Labor & Roof Size – Installing a new roof isn’t a uniform process. For example, a larger roof will cost more. The materials used also influence the labor cost. Clay shingles are harder to install than asphalt; thus, a higher labor cost.
Now that we understand the various factors that influence the costs behind your roofing project, this is where roof financing can help you.
With multiple roofing financing options available for your home improvement, you’ll be able to choose the right option that won’t break the bank.
Before we begin, let’s go over a few jargons first.
Defining Roofing Jargon
APR or Annual Percentage Rate
Your annual percentage rate refers to the loan amount the lending company charges you with. Some lending companies will charge extra fees; however, this is a case-to-case basis. When comparing loan products, APR is a useful tool you can use.
Principal
Principal is the total amount or sum of money borrowed at the start or onset of the loan.
Term
Term refers to the period of time or length you have to repay the loan to the lending company. Typically, a term is expressed in months or years.
Interest
Interest refers to the cost of your loan over a principal amount.
6 Roof Financing Options to Help You
Home Equity Loan
How It Works
A home equity loan is a financing option that allows you to borrow any available equity built in your home over time.
Calculating for a home equity loan depends on your home’s value and any outstanding mortgage you have on your home.
The more equity you have for your home, the better this will work for you. Your home equity increases as you continually pay for your home’s mortgage. In effect, this adds value to your home.
Calculating Your Equity Loan
If your home’s current market value is $400,000 and $150,000 as your home mortgage, we can use these 2 values to find home equity.
Take note that lending companies require a specific amount of equity to be eligible for this program. As a standard, lenders require at least 20% equity, a credit score in the mid 600s, and your debt-to-income ratio should be below 43%.
To calculate your equity, subtract your mortgage from the current market value of your home:
$400,000 – $150,000 = $250,000
$250,000 is 62.5% of $400,000, meaning you have 62.5% equity and is one approved qualification.
If your debt-to-income ratio and credit score are eligible, lenders will usually cap the amount of equity you can borrow at 80%.
The amount of home equity loan you are eligible to borrow will be as follows:
[Your home’s market value] x [percentage lender allows you to borrow] – [mortgage] = equity loan amount
[$400,000 x 0.8] – [$150,000] = $170,000 is the total amount you’ll be able to take in an equity loan.
Benefits & Risks
The benefits of an equity loan are its low-interest rates compared to most financing options for roof replacement costs or if you have to pay for a new roof.
However, you need to fulfill a lot of requirements, as mentioned in the example earlier. Without strong credit and a high debt-to-income ratio, this makes it difficult.
Company Financing
How It Works
Your roofing company may offer roof financing options, such as Term loans or lines of credit to help cover the costs of a roof replacement or roofing project.
Roofing companies will usually allow payment made over time. It’s also most likely that this roof financing option will also have a charged interest rate.
Benefits & Risks
Company financing is a roof financing option ideal for homeowners with a low equity loan amount or less than the ideal credit needed.
Benefits aside, the risk of choosing this roof financing option is its availability.
Not all companies offer payments made through this program, and reading the fine print is crucial. You have to be sure your monthly budget can cover the required payments, as stated in the fine print.
Credit Cards
How It Works
Credit cards as a roof financing option are pretty much self-explanatory. The only concern you should look out for is how strong your credit is. [R]
Benefits & Risks
The biggest benefit of choosing credit cards as a roof financing option is the 0% Annual Percentage Rate credit card you can receive, either as a new card member or through a balance transfer offer.
This means you get a higher spending limit with zero interest rates and save significantly over time.
As great as that sounds, credit cards are one of the few roof financing options with a shorter timeframe for full payment than company financing, equity loans, and personal loans.
Personal Loan
How It Works
This is more like a home improvement loan you can use to finance your roof replacement or repair costs. With a home improvement loan, you’ll be offered a substantial sum of money upfront.
The lender can offer you the home improvement loan amount through online means or via a credit union or a traditional bank.
The amount you are eligible to receive and the interest rate depend on your credit history and score.
Benefits & Risks
A home improvement loan is an excellent alternative if you’re offered a lower interest rate or the payment term is longer.
However, it’s crucial you review the terms of your monthly payment and interest rate. If you find that the monthly payment required is more than your budget, this can be a risky move.
Insurance
How It Works
All homeowners are required to have homeowner’s insurance. You can use this to help pay for any repairs, or replacement costs granted the damage occurred was due to a reason other than normal wear and tear.
Hail, fire, theft, or other natural disasters are viable reasons. Read more here…
If you are eligible, you can contact your homeowner’s insurance provider to find out how much they’ll cover and the process required to complete the transaction.
Benefits & Risks
This can be a good alternative to finance roofing costs since you already have it in place; however, this also depends on the amount you’ll be given and the monthly payments accrued along with it.
FHA Title I Property Improvement Loan Insurance
How It Works
Certain lenders from the Department of Housing and Urban development offer this roof financing option. This roof financing option will cover any roofing repairs through an FHA Title I Property Improvement Loan.
The amount you can borrow depends on your credit history and the need or urgency of the loan.
Benefits & Risks
FHA Title I is a financing option with fixed interest rates and fairly long payment terms. It’s also useful if you have residential properties with at least a 90-day minimum occupancy.
Like most loans, it’s crucial to read the fine print of the monthly payments required, terms, and other qualifications.
The Best Roofing Option for You
Whether you need to pay for a new roof or need to pay for roofing repairs and replacement costs, it’s best to consider all options first and make payments over time rather than all at once.
Roofing costs are expensive, but working within your budget and reading the fine print of any necessary payments, interest, terms, and qualifications will help you select the best option.
Don’t just go for one financing option. Try and see if you can use several of the options listed here. We hope this review gave you clear insight into how to finance your roof repairs and costs!
