How financing a new roof can save you money

To understand why financing a new roof can save you more money in the long run, let’s first look at the potential value it can add to your home.

When it comes to home improvement projects, there’s a big difference between a maintenance expense and an investment. Maintenance projects like plumbing, foundation repairs, and electrical work don’t add value to your home. Instead, the expense prevents your home from losing value.

On the other hand, an investment has the potential to increase the value of your home. Building a new deck, installing a pool, or remodeling your bathroom can all have a tangible impact on the resale value of your property.

While many people see roofing as a maintenance expense, that isn’t always true. Once you understand the potential ROI of a new roof, it can be a profitable investment that adds value to your home for years to come.

A new roof can also help you close a deal on your home. But what happens if you wait too long to replace it? There are two reasons waiting to replace your roof may decrease the value of your home:

• Degrading property – Waiting to replace your roof allows time for the rest of your property to decay. After some time, the cost of updating or repairing other parts of your home will likely cancel out the added value of your new roof.
• Missed opportunity cost – By financing a new roof, you can put down a small amount and have it installed right away. You can then use the money you’ve saved on up front costs to upgrade other parts of your home, like the gutters, windows, siding, skylights, and more. But waiting to pay for a roof in full means you won’t have money for these projects in the meantime.

Why not choose a cheaper option?

Often people choose to finance a new roof because they don’t have the money up front or they want to create a better financial cushion. But why not cut through the paperwork, credit inquiries, and monthly payments with a cheaper job that you can afford up front?

The short answer is this: You get what you pay for.

While paying for a cheaper roofing job up front may seem ideal, it isn’t worth compromising the quality of your home. To achieve a positive ROI on your replacement project, the job has to be done with exceptional quality.

Cheap contractors often cut corners not only with the quality of work, but with customer service, materials, and even their insurance policies. By working with a contractor who tries to win your business with the lowest bid, you risk working with someone who is uninsured, does poor work on your home, or may not even finish the job.

What’s worse than paying for a poor quality roofing job? Having to pay for it again. That’s why it’s important to choose a trusted roofing company with a long track record of high quality work and customer support. You don’t want to work with a roofer who cuts corners to save money.

Types of financing

Whether or not you save money on a home improvement project often depends on how you pay for it and how you recoup the property value. Because of this, it’s important to know what types of financing options are available. Depending on your credit score and a few other factors, there are multiple options you can take to finance a new roof.

Personal loan

A personal loan is exactly what it sounds like: a loan you take out to pay for a personal expense. This means they can be used for virtually anything from overdue bills to groceries. They can also be used to pay for a roof replacement project.

If you have good credit, it’s likely you’ll be approved for a personal loan with a low interest rate. However, if you have a lower credit score, you could be stuck with only high-interest options. Some personal loans also include additional processing fees and penalties for paying them off too early.

Home equity loan

Also called a “Second Mortgage,” a home equity loan is basically a loan against your house. To set this up, the lender gives you a certain amount of money (based on the equity you have in your home) and lists your house as collateral. If for some reason you don’t pay off the loan (or if you pay late) the bank may take your home as payment.

While this may seem like a high-risk option, the incentive to pay off the loan may be more in line with your desire to increase your property value. However, you can only use this option if you have positive equity in your home. This is when the market value of your home is less than what you still owe on your mortgage.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is similar to a home equity loan, but with a few key differences.

Typically, a HELOC works like a credit card. You can borrow against your home equity multiple times as you repay it.

But whereas a home equity loan has a fixed interest rate, a HELOC may have a variable interest rate for each payment. Aside from that, a HELOC only allows you to pull out small amounts. A home equity loan provides you with a lump sum up front for you to pay off over time.

Same-as-cash loans

Some companies can offer a loan agreement where you have a certain amount of time to pay off the principle amount before incurring interest.

For example, “90 days same-as-cash” means that you have 90 days to pay off the full price of the roof replacement (minus the interest). If you do not pay the full amount by that date, you can incur very high interest rates on the remaining balance.

These programs can be great because they allow you to pay for a new roof over time without the extra cost of interest. As long as you make the minimum monthly payment and pay off the full amount in time, you end up with a better cost-to-value ratio.

However, where you may have years to pay off other loans, same-as-cash loans often have much shorter loan terms. You won’t usually see anything longer than 365 days same-as-cash. This means higher minimum payments and a shorter amount of time to save up money. If you think you would need to save money for more than 12 months to pay for the entire project, this option might not work for you.

Homeowner’s insurance

Sometimes, if your roof needs a full replacement due to incidental damage, you could pay for it with an insurance claim. Hail damage, fallen trees, vandalism, and even aircraft damage are all covered by most homeowner’s insurance policies.

However, this option may not pay for a full replacement if the damage isn’t bad enough. If this is the case, you may still have to finance the remaining amount. Still, it is worth a shot to review your policy and call your insurance company to see how you may be compensated for the repair job.

Internal vendor financing

Depending on the roofing company you choose, they may offer to set up financing on your behalf. With this option, you won’t usually have to jump back and forth between the roofing company and bank or lender. Both the project and the payment terms will be handled by the same company.

That said, it’s important to finance your new project with a trusted roofing company. Some small-time contractors may offer financing options with extremely high interest rates or be dishonest about the final figures.

What if I have bad credit?

While financing is a good option for many people, your credit score may limit your loan options. However, that doesn’t mean financing isn’t a good choice for you. Here are a few financing options you can consider if you have a poor credit score:

• Secured loan – Just like a home equity loan, a secured loan offers something valuable as collateral. You could use your home, your car, or some other valuable item as long as you have proof that you are the legal owner. Just remember that if you fail to pay off a secured loan, the lender could take the item from you as payment.
• Bad credit loan – Some professional lenders offer loans specifically for those with low or fair credit scores. While these loans may charge a higher interest rate, this can be a good option to finance a roofing project with low credit. Just be careful to choose a reputable lender. Some people who offer low credit loans will try to cheat you out of your money or tack on huge (and unexpected) interest and processing fees.
• Call your local credit union – If you already have a bank account with a local credit union, they may be more willing to help you with a loan than a stranger. Because they know your account balance and history, they likely have a clearer picture of your activity over time. This might convince them to offer you a loan despite a low credit score.

The risks of buying later

Even if you choose a cheap roofing contractor to complete your project, a new roof is no small expense. With that in mind, it might seem smarter to save up money until you can afford to pay for all of it. After all, you don’t want to bankrupt yourself with a home improvement project.

But waiting too long to replace your roof may put you in the red anyway. This is a major risk for a couple of reasons:

• Insurance statute of limitations – If your roof needs to be replaced due to damage, waiting may not get you the compensation you need to complete the project. Many insurance policies have a statute of limitations for how long you can wait to file a claim. In many cases, you may only have one year to report the damage and still be covered for the replacement costs. If you wait beyond that, your insurance company may not accept the claim and you could be paying for the project in full out of your own pocket.
• Additional damage – Some homeowners don’t notice roof damage until it’s too late. While cracks and dents may seem minor at first, continued exposure to wind and rain can quickly create major leaks and water damage. If your roof is already at the end of its life, waiting to replace it only allows for more deterioration. Depending on the extent of the damage, repairing the rest of your home may end up costing more than the roof itself. By financing a new roof, you can protect yourself from mold, water damage, or other damages that requires costly repairs.
• Rising material costs – Supply chain issues and material shortages around the world caused by the COVID-19 pandemic are currently causing a steady price increase for roofing projects. If the price seems high now, it will likely be much higher in a few years when you finish saving the money. Financing a new roof with the current prices can help you save money on a more expensive project later on.

Final thoughts