Owning your home is a beautiful thing. Homeownership gives you the freedom to do with it what you please. But that also means that there is not a landlord to call when repairs are needed, and few repairs are more expensive than installing a new roof. No one in their right mind would prefer to spend thousands of dollars on a new roof than to go on a nice beach vacation. We all have had to make tough financial choices when it comes to home repairs and maintenance. Let this article be your guide to the best way to pay for a roof.
After reading this article, you will understand:
- Why not immediately buying a new roof when one is needed is a costly mistake
- How to finance a roof replacement
- Ideas on how to pay for a roof using unconventional methods
Steps to Getting a New Roof
Before you even consider financing a roof you need to know two important things: Do you need a new roof and how much is it going to cost you.
We covered both of these topics in previous articles and both can read here:
Cash is the Best Way to Finance a Roof
Cash is always your best options for purchasing a roof replacement; I am talking about money that you readily available to use, not necessarily green dollar bills. I recommend not paying your roofing contractor in dollar bills, but instead, write a check or use a credit card so that you have a paper trail.
Paying all cash allows you not have to deal with a bank and worry about all those expensive finance charges. Paying for roof repairs with money from your savings allows you to pay yourself back in increments. However, paying for a new roof is expensive, and it’s understandable that having thousands of dollars of cash stashed in between couch cushions to pay for a roof replacement isn’t a luxury that most people have.
When to start saving for a roof
A typical asphalt shingle roof will last 20 – 25 years, so if the roof on your home is 15 – 17 years old or if your house was built in the late 1990s or early 2000s then your roof may soon need replacing. Start by determining how much you will need to save by reading our guide, Cost of a New Roof, to determine a good ballpark figure.
How to start saving for a roof
Now that you know how much a roof replacement will cost, you now can start stashing away a little money each month. If you have a roof that is 15 years old and you determine that you want to have $10,000 saved in five years, you would need to set a goal of saving $167 each month for the next 60 months.
What are the options if you are short on cash
If you know you need a roof replacement but have decided to delay the project because of money, you are putting your home and family risk. If you have a leaky roof you are letting moisture into your home. Water in your attic, walls, and insulation will cause mold to grow, wood to rot and attract wood-eating insects. If a leak is allowed to persist, then you increase your risk of structural damage and health issues.
You may be asking yourself, “Is a roof replacement worth the debt?” The answer is Yes. Ignoring the problem will only allow moisture into your home making repairs more expensive in the future.
The Different Ways to Finance a Roof
The apparent reason to finance your new roof is that you don’t have enough money to pay for it. Also, you may not want to deplete your entire savings, if you don’t have to.
If you know how much a roof will cost, then you need to start looking into financing and loan options that are available to you. You should only start looking into financing a roof when are aware that you need a new roof and you know how much money it will cost. You should only finance the amount that you need and not a cent more!
Using credit cards may be a good option for some if the card’s interest rate is low and can be paid off quickly in a few months. Using your credit card to pay for a roof could be beneficial if your credit card has a good rewards program, as well. Using a credit card is a safe choice if you can pay off the debt quickly and if you have a low-interest rate.
You should not charge a roof to a credit card if the card is high interest. Some credit cards have an APR of over 30%, and using a credit card with such a high-interest rate could but you an impossible hole. Also be mindful of credit cards that are 0% interest for 12 months, but then the interest skyrockets. These types of credit cards are useful if you pay off the balance during the introductory period.
Next, a credit card shouldn’t be used if you only can afford to pay the minimum payment each month. Here is why- let’s say you finance $6,000 of roof repairs on your a credit card with a modest interest rate of 12.5%, and you only pay the minimum payment of $50.00. It will take you 106 months to pay off your debt if you make minimum monthly payments on a balance of $6000.00 with a 12.5% APR. In that time, you will pay $2696.24 in interest charges. If you can only afford the minimum payment, then you shouldn’t use a credit card to finance your roof.Using a credit card to pay for a roof replacement has its pros and cons!
Financing your roof with a HELOC or Home Equity Line Of Credit is another option for homeowners. A HELOC is a loan in which the lender agrees to lend you a maximum amount within an agreed period, where the collateral is the borrower’s equity in his/her house. Source: Wikipedia
A HELOC is different for a second mortgage or a home equity loan in that you do not get a lump sum of money up front, but uses a line of credit to borrow sums of money up to the credit limit, similar to a credit card.
A HELOC may be a better choice than a credit card because typically they have a lower interest rate. A HELOC is also a good choice if you have plenty of equity in your home.
HELOC have variable interest rates, this means that your interest rates can rise. A higher interest rate will affect your monthly payment and the overall cost of the loan. A HELOC will not be available to you if you don’t have significant equity in your home to use as collateral.
Second Mortgage or Home Equity Loan
You may decide to finance your new roof with a home equity loan or second mortgage. A home equity loan allows a borrower money from a bank against the equity in their home.
Pros: An HEL will typically have a fixed interest rate and installment payment. You will precisely know what you will pay each month for the duration of the loan. Usually, you can get a low-interest rate because the loan is backed by your home as collateral. Also, the interest portion of your installment payment is tax deductible for the borrower, with some limitations.
Cons: The biggest risk with HEL is that you are using your home as collateral and if you default on the loan, it is probable that your home could be foreclosed then sold at auction. So it is important to make sure that your payments according to the loan agreement.
To qualify for a HEL, you will need to have sufficient equity in your home and qualify for a loan. A HEL can be an easy source of cash and obtain one can be quite simple. Source: Investopedia
Financing your roof installation with cash-out refinance may be an option if your new roof has a substantial cost. A cash-out refinance where a borrower gets a new mortgage greater than the existing mortgage amount, plus settlement costs. The purpose of a cash-out refinance is to extract equity from the borrower’s home.
This loan is an alternative to a home equity loan (HEL). The pros and cons are very similar to that of a HEL. However, the bank may charge high fees, like property appraisals, document fees, and attorney fees, for a cash-out refinance mortgage.
Note: The state of Texas doesn’t use Mortgages, but instead uses Deeds of Trust. The two are different, but for the purpose of this article, the terms are interchangeable.
Title I Home and Property Improvement Loans
Getting a Title I Home Improvement Loan to finance a roof replacement is another option available to you. This loan is for single-family homes to use for site improvements, alterations, and repairs. The property owner needs to apply for a Title I Lender that is approved to make these types of loans. For more in-depth information visit: hud.gov
Pros: The interest rate is fixed and based on a common market rate. You can get a loan for up to $25,000 for a single-family house.
Cons: Any loan of $7,500 must be secured by a mortgage or deed of trust.
Signature Loan or personal loan
A signature loan or sometimes called a personal loan is another option for financing a new roof for your home. A personal loan is an unsecured debt (won’t have to use your home as collateral) that can be used to pay for a roof. The benefits of a personal loan are fixed monthly interest rate and payment. The interest rate and terms vary based on your credit score and other factors.
Just like hiring a roofing contractor, it is important to shop around for the lowest interest rate. The interest rate banks charge can vary considerably, so it’s important to do your homework. Furthermore, just like finding a roofer, it is important to shop locally and build relationships with local businesses, so find a local bank or credit union.
Unconventional Finance Methods
Get a loan from a friend or family
Now I can hear you moan as you read this, then comes the awkward silence. But getting a friend or family to loan you money may be your only option to finance a new roof with bad credit. Obtain a loan from a friend or family is a tricky game, but if done correctly it can be beneficial to both you and your friend.
First, realize that if you are going to be getting a loan from a friend, you shouldn’t take advantage of them by asking for a no interest loan and not repaying your loan. You need to honor the terms of your agreement, just as you would with a bank. You should actually treat your friend better than you would treat your bank, after all, they are your friend.
It is important to document everything, and realize that these documents are legally enforceable.
Here are some dos when getting a loan from a friend: Do create a contract and a repayment plan, do get the document notarized, do make timely payments, do think of the loan as a business transaction. Finally, Do hire a local business attorney to draw up the loan documents.
Here are the don’ts when getting a loan from a friend: Don’t make your friend ask for the payment each month, don’t ask for a no interest loan, don’t think of the loan as a gift
Pros: Getting a loan from a friend can be win-win for both you and your friend if handled correctly. You win because you get the money to pay for your roof and your friend wins because he or she gets a modest return on their money. Also, you don’t have to worry about going into a bank or getting a second mortgage on your house.
Cons: Getting a loan from a friend or family member can be a dangerous game. If you don’t live up to your obligations, you could risk losing the friendship, and you could end in small claims court.
Find a roofing contractor that finances
You could find a contractor that fund roof replacements. Roofing companies that finance can be difficult to find because contractors like to do what they do best and that is building exceptional roofing systems.
There are roofing contractors that offer financings, but these are typically big regional companies that charge more for their roofs. These roofers typically partner with lenders. Their lending partners are not different from your local bank or credit union.
You can replace the roof yourself
If you are handy with tools and have the experience, you can save money by replacing the roof yourself. But unless you are skilled in carpentry and in excellent physical shape you should rely on professionals for such work.
Barter with contractor
Do you have something of value or a skill that you can trade for roofing services? The difficulty with this options is that it may be quite difficult to find a professional company willing to work for barter. If you want to barter then read: How to Barter Anything.
There are a few government US grants that help with roof replacements but the grant may not pay for your entire roof and also could take months if not years to get approved. Grants may not be an option if your roof is leaking now or is severally damaged.
Getting a new roof is a big purchasing decision and we appreciate the gravity of that decision. The very best way to make sure you get the best price and the best contractor for your roofing project are to contact three or four local roofers to request a quote. All the quotes should be around the same price since roofing is such a competitive industry.
If you want a professional roofer to take a look at your roof or to give you a free estimate call (507) 589-4020 to set up an appointment. Our roofers are local Austin businesses with over 20 years experience and will treat you fairly.