How to finance a new roof: Loans, grants and other payment options

With roofing costs on the rise in the U.S., many homeowners are struggling to pay for new roofs outright. In fact, home improvement spending is at an all-time high. Homeowners spent a whopping $827 billion on home projects during the two-year period ending in 2023, a more than $200-billion increase from the previous two-year period, according to NerdWallet .

It's no surprise, then, that many homeowners choose to finance home improvement projects rather than pay out of pocket. According to NerdWallet's analysis of the U.S. Census Bureau's 2023 American Housing Survey , financing is the most popular funding option among U.S. homeowners for home improvement projects that cost more than $10,000.

Home equity loans (HELs) and home equity lines of credit (HELOCs) are among the most popular options, along with personal loans, credit cards and government loans and grants. Backed by insights from experts in finance and roofing, we'll discuss each option in detail throughout this article.

Check with your insurance company before financing your roof

Drew Boyer, founder of Boyer Financial Group , a financial planning company in Ohio, recommends that homeowners check their insurance policies before applying for financing. If your roof was damaged by a storm or extreme weather event, for example, you might be covered. "This is why you have home insurance or a home warranty," Boyer said.

Review your policy's "covered perils" to see if your policy might cover your roof replacement . If so, and your claim is accepted, you will only pay a deductible, ranging from $500 to $2,000, according to NerdWallet . This is far below the average cost of replacing a roof, which can easily exceed $10,000, based on reporting for Yahoo Local's guide to roof replacement costs .

While home insurance can be a big help, Boyer also said homeowners should be aware that insurance companies don't always approve claims, even when they should. Plus, the amount of your payout could end up being less than what contractors are charging.

Brandon Foote, owner and president of Advanced Roofing & Construction , an Alabama-based roofing company, agreed, noting that insurance companies are rejecting more claims than ever. "Homeowners who were used to getting their roofs replaced by their insurance companies are also having to turn to financing," said Foote. This is mainly due to "increased deductibles and new, stringent policies" designed to limit liability and payouts.

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It's important to note that normal roof wear and tear is not covered by home insurance (HOI), so most standard roof replacements are paid for out of pocket or through financing.

7 financing options for replacing your roof

There's no one-size-fits-all solution for home improvement financing, but the options below are listed in order of what's generally considered least to most risky.

1) Take out a home equity line of credit (HELOC)

HELOCs are the most common financing option for major home renovation projects, like roof replacements and significant repairs.

"A HELOC allows homeowners to finance a roof replacement by borrowing against their home's equity without refinancing their mortgage," said Paul Dashevsky, co-CEO of GreatBuildz , a service that connects homeowners with contractors. "Just like a credit card, it offers flexible withdrawals, interest-only payments on borrowed amounts and typically low closing costs." However, Dashevsky notes that HELOCs tend to carry variable interest rates that can rise over time.

If you take out a HELOC, your property will serve as collateral, reducing the lender's risk and increasing your chances of approval, provided you meet the necessary criteria. Once approved, your lender will establish a pre-approved credit line, and you can borrow funds up to that limit as needed.

According to Chris Scheetz, a mortgage loan originator at Mortgage America , HELOCs typically offer better interest rates than contractor financing, for example. These loans function as a revolving credit line, allowing you to draw funds as needed. Plus, you will only pay toward your interest during the initial draw period (typically 10 years). After this phase, you pay the principal and interest.

At the time of publication, HELOCs carried an average interest rate in the high 7% range, according to Bankrate . Keep in mind, though, that interest rates fluctuate often, and the rate you receive will depend greatly on your credit score and chosen lender.

2) Apply for a home equity loan (HEL)

HELs are also very popular when it comes to new-roof financing.

A HEL, often called a second mortgage, "provides homeowners with a lump sum loan to replace their roof based on their home's equity," explained Dashevsky. "Unlike a HELOC, it has a fixed interest rate and requires payments on the full amount from the start." HELs typically carry higher interest rates than HELOCs and primary mortgages, but despite this, Dashevsky notes that "predictable payments over a five to 15-year term" is the right option for some homeowners.

Unlike HELOCs, these loans carry a fixed interest rate, fixed term and fixed monthly payment, according to Sheetz. After approval, you receive a lump sum, and repayment begins the following month.

As of this article's publication, the average interest rate for HELs is approximately 8%, according to Bankrate .

2) Refinance your mortgage

Depending on your current mortgage situation and total equity, mortgage refinancing can be a great option for funding a big home improvement project. However, as with any financing option, there are downsides.

"A cash-out refinance allows homeowners to replace their existing mortgage with a larger loan, converting home equity into cash to replace their roof," said Dashevsky. "This option often provides a lower interest rate than renovation loans and [offers] repayment over 15 to 30 years."

However, refinancing "usually requires at least 20% equity, comes with closing costs and involves a full underwriting process," said Dashevsky. If you're curious about your refinancing options, speak directly with your primary mortgage lender.

3) Apply for a personal loan

A personal loan comes directly from your bank. Compared to HELs and HELOCs, personal loans tend to have higher interest rates and shorter repayment terms. However, they're typically easier to qualify for and can grant you fast access to funds, making them a worthwhile option for some.

However, most personal loan options are considered "unsecured," meaning you aren't borrowing against any collateral, and risks may be higher. On the upside, you can often get a decision within a day or two, and if approved, funds are disbursed immediately.

"An unsecured personal loan [can] provide quick and simple financing to get the cash for a roof project," said Dashevsky. "Approval is based on income qualifications, and loan amounts are usually capped at $100,000." If you need cash to replace your roof fast, using a personal loan may be a good option, but be aware that most must be repaid in full within five to 10 years, and there's typically no grace period before repayment must begin.

For a borrower with good credit, interest rates for personal loans averaged about 14.5% at the time of publication, according to NerdWallet .

4) Apply for a government loan

Available through the Federal Housing Administration (FHA) , government-backed home-improvement loans are a good option for those who do not qualify for other loan types.

The FHA 203(k) program allows U.S. homeowners to refinance for renovation expenses without assuming too much risk by letting you fold your existing mortgage and new principal into a single, FHA-insured mortgage. These loans offer flexible terms, accessible approval requirements and lower interest rates than some other options. FHA 203(k) loans are designed to fund home improvement projects that cost between $5,000 and $75,000. The minimum credit score required to apply is 500, but individual lenders may have higher requirements, according to Nerd Wallet . If you choose this route, you will also need to provide a down payment between 3.5% and 10%.

FHA Title I Property Improvement loans are fixed-rate loans designed to facilitate essential home improvement projects for lower-income homeowners with limited financial resources and for those who do not meet the criteria for conventional HELs. You can apply for an unsecured loan of up to $7,500, or up to $25,000 for a secured Title 1 loan, according to Lending Tree . You must use an FHA-approved lender, and you may only use the funds for the improvements disclosed in your application. You will also pay an annual insurance premium of 1% of your borrowed amount.

FHA loans are funded by the U.S. Department of Housing and Urban Development (HUD), and you can learn about all HUD federal loan options on its website.

5) Apply for a home-improvement grant

Agencies like HUD and the U.S. Department of Agriculture (USDA) also offer home improvement grants for homeowners who meet certain requirements. For example, if your income does not exceed the "very low" limit in your area , or if you are 62 or older, you might qualify.

While not everyone can take advantage of this financing option, most grants offer the unique benefit of requiring zero repayment. However, USDA grants cannot exceed $10,000, so they may not be able to fund a full roof replacement if you live in a high-cost area. You can learn about all of the USDA grant options on the agency's website.

The U.S. Department of Energy (DOE) also offers a grant that can be used for roofing projects in some cases. The Weatherization Assistance Program (WAP) is available to households with incomes at or below 200% of the federal poverty threshold, or that receive Supplemental Security Income (SSI). Priority is given to seniors, families with disabled members or children and homes with high energy consumption or significant cost burdens.

Some cities and counties also offer regional and state-issued loans and grants for home improvement projects, so contact your local government offices for more information.

5) Finance through your roofing contractor

"Contractor financing can be a helpful resource when time is of the essence," said Mary Mokris, consumer payments and financing manager at GAF , a leading roofing manufacturer. But while this financing option can offer speed and simplicity, said Mokris, it can also come with higher interest rates and less desirable loan terms.

While some contractor financing options are handled in-house, most contractors work with third-party lenders to help customers pay. Be sure to read the fine print before committing, as this type of financing can carry interest rates as high as 25% or more, according to Foote.

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Don't rule out contractor financing altogether, though, especially if your other options are limited. Foote said the most common terms he sees for roofing contractor financing include a 10-to-15-year term with approximately 12.99% APR. While these terms can't compete with the more favorable terms of HELs and HELOCs, Foote said contractor financing can still be a good option for homeowners who struggle to qualify for other loan types.

Like most financing options, contractor financing requires a credit check, so review your credit report before applying. The higher your score, the better your chances are of securing decent loan terms.

6) Consider a 0% APR credit card (but be careful)

Opening up a new credit card with a zero-interest introductory period is another option for paying for your roof replacement, but it comes with significant risks. "Only use this if you have a solid plan for paying it back," said Ali Zane of iMax Credit Repair , an online consumer credit repair firm.

If you know you can repay the cost of your roof repair within the promotional timeline (usually one year), using a credit card can be a great option that will save you money on interest. But Zane also refers to this as a "trap" because many borrowers end up owing even more money in the end due to not being able to pay off their balance in a timely manner.

Ending up trapped in credit card debt can cost you thousands in interest and even lead to a damaged credit score if you miss payments or maintain a high debt-to-credit ratio for too long. While promotional offers from credit card companies often come with enticing introductory terms, be wary of high interest rates that could come into effect after the first year.

According to Forbes , the average interest rate for credit cards was 25.33% when this article was published, which is significantly higher than the loan interest in most cases. Plus, many roofing companies charge credit card processing fees ranging from 1% to 4%, which can drive up the cost of your roofing project if you pay by card.

7) Finance your new roof through your retirement fund

"Unless you have a family member willing to step in and help, the last and most creative option is taking a loan from your workplace retirement," said Boyer. If your 401(k) plan allows it, you may be able to borrow up to 50% from your retirement account as a "hardship withdrawal."

"Typically, these loans charge an interest that is 'prime + 1%,' and with prime currently sitting around 8.25%, that's a 9.25% rate," explained Boyer. "Not cheap, but also not 30%," which you could end up paying with contractor financing or predatory credit card offers.

Despite this, Boyer recommends viewing retirement financing as a last resort. "It steals from your future to pay for your present," he said.

If you withdraw money from your retirement account to pay for a roof replacement, "it will be taxed dollar for dollar, plus [you'll lose] all that compound interest," said Boyer. You'll also run the risk of having to suddenly repay the loan in full if you lose your job, as this would put you into "loan forfeiture."

If you're considering going this route, Boyer recommends speaking with a financial advisor before making any big decisions.

Which roof financing option is right for you?

Choosing the right financing option for you depends on several factors, like your level of home equity, the types of financing you qualify for and how quickly you need the money. Mokris believes "there is no one way that is 'best' to finance a roof." Instead, she said, "It depends on each homeowner's financial situation and their ability to afford the interest and principal payments of the financing method they choose."

That said, there's a reason most homeowners choose HELs and HELOCs for roof replacement. "Home equity lines of credit and home equity loans are great options for homeowners who have built up equity in their homes," said Mokris. "A key benefit with both options is that [homeowners] can often access a better interest rate over other forms of financing."

If you don't qualify for a HEL or HELOC or can't access your financing quickly enough, look into a personal loan or contractor financing, but be wary of unfavorable loan terms. "Personal loans and contractor financing are going to have a faster turnaround," said Foote, "whereas a HELOC might take 30 days or more."

Promotional credit cards and hardship withdrawals from a retirement account may be right for some people, but they should be approached cautiously, as they carry significant risks. Don't forget to check your HOI policy for coverage options before applying for financing, and explore government loans and grants to find out if you qualify.

Do your research before choosing how to finance a new roof

When financing a roof replacement, "make sure you do your due diligence and be wary of people offering deals that are too good to be true," said Foote. "Everything has a price, whether you can see it or not."

Start by considering the lowest risk options like insurance coverage, grants, HELs, HELOCs and personal loans before moving on to higher risk options like credit cards, contractor financing and retirement financing.

If possible, consult a financial advisor before making any big decisions about your finances, and always prioritize your long-term financial well-being over access to short-term funds.

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