How to Finance a Roof Replacement

The New Year brings many opportunities to improve your home, such as changing your aged roof. Problematic roofs can increase your energy bills, increase indoor humidity due to water leaks, and become much more expensive to replace during the wrong season. If it's spring or summer and your local roofer is available, find the right financing to start your roof replacement. Here are several options.

Equity Loan

An equity or home equity loan is a second mortgage most homeowners use to finance home renovations or roof replacements. It uses your home's equity, a portion of your ownership of the home, as loan collateral. Payment terms typically last between 5-30 years. Learn your equity value by deducting the amount you must repay from the home's current market value.

Cash-Out Refinance

Refinancing lets you take a new mortgage on your home. Lenders use your home's current market value as its basis. Before you can use this, you must have paid off your existing mortgage. Most homeowners who can secure significantly lower interest rate than their original mortgage use cash out refinancing.

Here are several other methods you can use, according to LendingTree.

4. FHA 203(k) loan

If you lack sufficient equity in your home to cover roof financing, one option is a 203(k) mortgage issued through the Federal Housing Administration (FHA). These mortgages are issued by FHA-approved lenders to enable the purchase or refinancing of homes in need of repair, and both fixed- and adjustable-rate loans are available.

There are two types of 203(k) loans — standard and limited. A limited 203(k) mortgage, which covers repairs costing up to $35,000, is probably adequate for most roof replacement jobs.

If your roof requires more work than that, or if you’d also like to finance more extensive structural renovations along with a new roof, you can opt for a standard 203(k) mortgage, which allows you to borrow the lesser of these two amounts:

110% of the anticipated value of the home after renovations are completed

The sum of the home cost plus the cost of renovations

If you pursue a standard 203(k) mortgage, you’ll have to hire an FHA-approved 203(k) consultant to act as liaison between you, the lender and the roofer (and other contractors, if any). The consultant devises a work plan for the project, ensures construction meets proper standards and signs off on the release of funds to the roofer and other contractors.

Fees for writing up job specs for FHA-approved consultants range from $400 for repairs of $7,500 or less to $1,000 for jobs that cost more than $100,000. Consultants may charge additional fees for inspections conducted at various milestones in a project. You can find a full list of fees and a list of FHA-approved consultants at the FHA website.

If your credit score is 580 or higher, you qualify for the minimum 3.5% down payment required for a 203(k) mortgage; if your score falls below 580, you’ll have to put down 10% of the amount you’re borrowing. (Continue reading here to learn more)

Don't let your financing efforts go to waste by hiring the best roof replacement contractor for the job. If you have yet to find one, you can count on Miller's Home Improvement. We have taken care of our local neighborhood's roofing needs for decades and work only with the best equipment and experienced workers. Call us today to get started.