What’s the Best Way for You to Finance Your Roof Installation?
Homeowners have a lot of home-related expenses to contend with. And, unfortunately, home repairs wait for no one. In fact, they seem to come at especially bad times when your bank account can least spare the cash. Luckily, there are roof financing options for people who are light on liquid funds.
Getting a roof loan is like getting any other home improvement loan. It’s just borrowed money based on your credit score. But, financing your roofing project is more complicated than that because you have several potential paths to obtain financing.
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Most homeowners pay for a new roof by using one of these common loan types.
A Home Equity Line of Credit: Also known as a HELOC in the lender world, it’s a popular way to finance home improvements. As the term implies, it allows you to withdraw the equity you’ve built up in your house for home improvements, weddings, college, etc.
A HELOC works similarly to a credit card. You get approved for a specific amount of money but you only draw what you need when you need it during a specified time, then pay back what you used during the repayment period. The upside is, you are potentially making improvements that will increase the value of your home, hopefully offsetting the fact you tapped into your house’s equity.
Also, the interest rate is lower compared to the average rate of a personal loan, saving you money. The downside is your home is collateral. So, if you lose your job or get yourself into a dire financial situation and can’t pay it back, you lose your home. Plus, the rate is usually variable, making it harder to budget at times.
Home Equity Loan: Similar to a HELOC, a home equity loan pulls the equity from your house. Unlike a HELOC, it gives you the funds all at once. It is also typically a fixed-rate loan, so there is more security because you can anticipate your payment and budget better as opposed to a line of credit. Just like a HELOC, the rates are lower than credit cards or personal loans — as low as 4 percent.
Because it is a secured loan and your house is the collateral, failure to pay it back will result in a foreclosure. And, to take advantage of an equity loan, you need to have built up a sufficient amount of equity in your home for the bank to lend to you — usually 30 percent. That amount is also generally capped to 80 percent of your home’s value as well, which can be substantial, but is obviously contingent on how much your home is worth.
An equity loan is great for bigger, more costly projects because 1) you can have access to a lot more money than what you’d get from a personal loan or credit card, and 2) the interest is lower, saving you money over time in reduced interest, and 3) it takes more time to apply and close an equity loan. It also requires an appraisal in most cases because it is a second mortgage, so if you’re in a time crunch to get the repairs or improvements done due to an emergency situation, then a faster personal loan or credit cards may be a better financing fit — but, if you have time on your side to plan out your projects, then the extra time for the funds to disperse isn’t an issue.
Credit Cards: Most adults probably have a least one credit card in their wallets. Financing your roof with your credit card is always an option, and might be the best one if the roof needs to be replaced quickly or you need an urgent roof repair.
Use a card that has cash back or points as well as deferred interest for at least a year, giving you time to pay it off. Just be sure you do pay off your large balance before the interest kicks in or you could see yourself with some significant debt that is hard to pay down.
Personal Loans/Home Improvement Loans: This is a popular option. There are many companies that offer personal loans, so getting approved is fairly easy and fast. There is no collateral required, so your home isn’t on the line if you slip up on payments, although your credit will still suffer, your ability to live in your home won’t.
Because so many companies other than traditional banks now offer financing, you have the ability to shop around. In fact, larger roofing companies have financing options you can look into as well. The amount you can borrow is usually lower than an equity loan, but sizeable enough to tackle large roof installation projects — typically $30,000-$40,000 max.
Interest rates range from as low as 5 percent up to as high as 36 percent. Your interest rate on a roofing loan depends on the amount borrowed and your credit. Even though the rate can be high, it might be your best or only option to make manageable monthly payments, especially if you don’t want to run up your credit cards, don’t have time to apply and transfer the balance of existing cards, or you don’t have any appreciable equity in your home to draw from.
It may be tempting to ignore a deteriorating roof because money is tight and other financial matters seem more urgent, but delaying a roof repair or new roof installation will eventually lead to larger, even more expensive repairs later due to neglected water damage to the surrounding home structure. So, don’t delay. Get your roof situation under control as soon as you can.