6 loan options to finance your new roof

A roof replacement can be expensive, and homeowners often find themselves needing to carry out the work unexpectedly, either as a result of damage or following an inspection.

This means that many turn to their emergency savings to pay for it, but the reality is that a number of different roof financing options exist that can mean you don’t need to touch these.

In this guide, we’re going to take a look at the different routes you can go down to pay for a new roof, introducing you to RenoFi Loans.

The Pros & Cons of 6 Roof Financing Options

If you know you need to replace your roof, we’ll take a guess that you’re considering the best way to pay for it, hopefully without turning to your emergency savings.

And we’re the first to admit that understanding the different types of roof financing that are available to you can be confusing.

Below we take a look at the pros and cons of 6 different options:

A RenoFi Loan

RenoFi Loans are a new type of home renovation loan that let you borrow based on your home’s after-renovation value and, as a result, increase your borrowing power. Think of them as combining the best parts of a construction loan with a home equity loan.

RenoFi Loans come in three forms, depending on what works best for you:

• RenoFi Home Equity Loan
• RenoFi HELOC
• RenoFi Cash-out Refinance

This means that they’re perfect for homeowners who haven’t yet built up sufficient equity to tap into to finance their home renovations and repairs, with this often being simply because they only recently purchased their home.

Based on the fact that RenoFi Loans let you borrow based on your home’s after renovation value, this can increase your borrowing power by 11x, on average.

And what does this increased borrowing power mean?

It means that homeowners can get started on their entire renovation wishlist today, rather than completing it project by project over the course of many years or the alternative of reducing the scope. 

A RenoFi Loan could make it possible for you to affordably borrow the money to talk to your contractor about more than just your roof, whether you’re looking to remodel your bathroom, your kitchen or even install solar. Whatever’s on your renovation wishlist, a RenoFi Loan can make it possible. 

Too many homeowners turn to a high-interest personal loan when they need to finance a new roof, usually because they haven’t built up enough equity and aren’t aware that alternatives exist. A RenoFi Loan is that alternative and lets you borrow the most money for your renovation with the lowest monthly payments.

Why not speak with one of advisors today and see whether a RenoFi Loan could be the right method of roof financing for you? Alternatively, enter your details into {{ }} to find out more about how much you could borrow and what your monthly payments could be. 

A Home Equity Loan or Line of Credit (HELOC)

Home equity loans and home equity lines of credit (HELOC) are two common methods that can be used by homeowners to borrow against the equity they have built up in your property. 

The loan will give you the peace of mind of fixed repayments and interest rates, but you will have to pay interest on the loan amount immediately. With the HELOC, your interest rates and premiums can fluctuate, but you will be able to draw the funds gradually, as and when needed during an initial draw period.

Both options are limited by equity, up to 90% of the total property value, but there’s one big problem that many homeowners face.

It takes time to build up equity.

Just look at how long it takes to build up $100k in tappable equity:

Recent homeowners often find that they haven’t got the equity that they need to use a home equity loan or line of credit and unnecessarily turn to personal loans or unsuitable methods of financing to pay for a new roof or other home improvements and repairs.

If you’ve not built up enough equity, a RenoFi Loan could be perfect for you, instead letting you borrow based on your home’s after renovation value rather than it’s current value.

But even if you do have enough available equity to finance a new roof, what happens next time? When you want to get started on your next project to turn your house into your forever home? 

Even though a home equity loan might make sense right now, a RenoFi Loan could help you to borrow all of the money that’s needed to finance your entire renovation wishlist upfront. 

A Cash-Out Refinance

Many homeowners shouldn’t use a traditional cash-out refinance for any renovations or home improvements.

Why?

Because if you’ve already secured a low interest rate on your first mortgage, you’ll end up refinancing onto a higher rate and pay unnecessary closing costs based on the whole loan amount.

A higher rate, of course, means higher monthly payments. 

Instead of turning to a traditional cash-out refinance to pay for your new roof, take a look at how using a RenoFi Loan could let you borrow the money you need without having to refinance your first mortgage and paying higher than necessary closing costs.

The only time when a cash-out refinance makes sense is when you’re significantly reducing the rate by doing so - and in that case, a RenoFi Loan will allow you to borrow 11x more because you’re taking cash out of your future equity, not your current equity.

A Construction Loan

It’s not uncommon for homeowners to turn to construction loans to pay for major renovations, but for the most part, there are better options available.

For starters, using a construction loan to pay for a new roof and other renovations means you’ll need to refinance, and this is going to result in closing costs based on the whole loan amount and higher monthly payments as a result of going onto a higher rate.

But that’s not all. Construction loans are infamous for their complex inspection and draw process that means you won’t get all of the money up front. This adds complexity to your project and many contractors will even refuse to work with this type of financing. 

Construction loans are intended for ground-up construction, and for other home improvement projects, alternative methods of financing are usually going to be preferential. 

An FHA 203k, FHA Title I Loan, or Fannie Mae HomeStyle Loan

At first glance, government-backed renovation mortgages like the FHA 203k Loan or the Fannie Mae HomeStyle Loan may seem an ideal way to finance a new roof.

Both of these options let you borrow based on your home’s future value, like a RenoFi Loan does, and can be used to combine the purchase (or refinance) of a property and renovation costs into a single loan. 

But both of these options add unnecessary complexities to the financing process that can often result in delays. You’ll also be forced to refinance your existing mortgage onto a higher rate which will inevitably increase your monthly payments. 

Both FHA 203k and Fannie Mae HomeStyle Loans are options, but most homeowners will likely be better off considering a RenoFi Loan.

That is, unless you’ve got a poor credit history.

203k and HomeStyle Loans have a lower credit score requirement than other types of financing, and might be the only available option that lets you borrow against your home’s future value if this applies to you.

An FHA Title 1 Loan, on the other hand, will give you the option to borrow a small amount of capital upfront, with no security beyond a signature or a higher amount when secured against a property. This is great if you only need a small amount of funding, but this will only be useful for small projects, and you will likely need to look elsewhere if you need a higher level of finance.

If you have been considering one of these government-backed loans, take a look at our FHA 203k Loan vs Fannie Mae HomeStyle Loan guide.

A Personal Loan / Home Improvement Loan

Homeowners who are unable to borrow using equity often turn to a personal loan to finance a new roof. Loans advertised as ‘home improvement loans’ are also often considered for this reason.

What many aren’t aware is that these are commonly just high-interest personal loans marketed at homeowners looking to borrow to pay for home improvement projects. What appear to be specialist ‘roof loans’ usually fall into this category, too. 

Homeowners often turn to personal loans because you won’t need to put your home up as collateral, and you should get approved quickly if you are eligible, but they come with their downsides for most projects. 

Interest rates tend to be high, typically between 8% and 15%. And higher interest rates means higher monthly payments. Repayment periods are also usually shorter than other roof financing options. 

That said, if you’re only looking to borrow a small amount of money for a roof repair or smaller roof replacement, this might be your best option, especially when you consider that a RenoFi Loan starts at $20k. 

What’s the Best Way to Finance a New Roof?

The best source of funding for your new roof depends greatly on your circumstances.

In many cases, however, a RenoFi Loan is going to be a great option, whether or not you’ve got sufficient equity available. 

But whatever type of financing you’re considering, you need to make sure you’re thinking about the following:

• How much is your replacement roof going to cost?
• Do you have a larger renovation wishlist? 
• How much money do you need to borrow?
• How much equity do you have in your home?
• What’s your credit score and credit history?
• Do you have any other debt on other loans and credit cards?
• What is the maximum monthly payment you can afford? 
• How long do you want to repay the loan over?

Get quotes from a number of different roofing companies to make sure you understand your options and take the time to consider all of your financing options. At the end of the day, going down the wrong route can increase monthly payments considerably or reduce your borrowing power, so finding the option that lets you borrow all of the money you need at the lowest cost is important. 

Reach out to our team today to discover more about how a RenoFi Loan can help you get started on your roof replacement project.