Is it raining in your living room?
If you have been following along then you all know we are getting ready to close on Our Florida Farmhouse. We have spent years looking for the perfect property and although it needs some work, we have our heart set on it. We have known from the beginning that it needs a new roof. So, the question of how to pay for a new roof, became one that lived in the back of my mind. A roof if a large expense for any homeowner. However, we don’t even own the property yet and on top of down payment and closing costs, we need to find the money for a roof.
New Roof for a New Purchase
If you are in the process of purchasing a home that needs a new roof the best scenario is that you get the seller to complete it prior to the inspections and appraisal. That doesn’t always work out. In our case the seller was recently widowed and simply does not have the money or energy to do this. That leaves us looking at some different options.
1. Foreclosure Financing- If you are buying a foreclosure there are some mortgage options out there that will allow you to have cash back at closing or add on an additional line of credit for repairs. I recommend speaking to a mortgage specialist about this!
2. Conventional Financing with Cash Out at Closing- Although not common some conventional lenders will provide you up to 6% cash back at closing for a roof repair. This means you would account for the price of the roof in your offer and the appraisal needs to come in high enough to allow for it. Again, get with those mortgage people!
3. Escrow – Closing with funds in escrow is a great option if you have the cash already set aside. The way this works is you close on the home and your title company holds the funds for the roof until the work is completed. Typically, you need to set aside 1.5% of the total cost. Which means if you roof estimate is $10,000 then they will hold $15,000 until completed. Many lenders will require it to be done this way.
4. Financing After Closing- If you qualify for what is considered conventional financing (not VA, FHA or HUD) your lender may allow you to close and then complete the roof. The problem then becomes homeowner’s insurance. Our insurance company is requiring us to have ours done in 30 days. You have a couple different financing options, look below for what to do when you already own your home.
Roof’s are not cheap! We have had estimates from around $15,000 all the way up to $36,000 for a metal roof. Our home is covered in 100+ year old Grandfather Oak trees. Many people have recommended metal however it turns out with a good shingle and craftsman warranty, shingle may work fine. We decided to go with shingle and to start a sinking fund for a future metal roof. Knowing it won’t last forever, I would rather have less out of pocket now. Then we can pay cash in the future for a metal roof.
So, what do you do if you already own your home? Well you need to consider if a repair is worthwhile or if you need a re-roof. In our situation not only, the roof but the roof decking also needed to be replaced. The roof decking is basically plywood that the shingles are applied to. It’s still costly though!
New Roof or Repairs for a Home You Own
1. Pay Cash- By far the best option is always going to be pay cash. If it is a repair and you have enough in the emergency fund use it. But only if it is an emergency! If it is something you can save for quickly then create yourself a sinking fund (See http://www.Daveramsey.com for more) and pay cash. No debt is always going to be the best option.
2. Roofer Financing- Many larger roofing companies have financing specialist that can help you decide on the best way to pay. Home Depot even offers what is called Project Financing that can be used for roof replacement. Be careful though! Remember that these terms are not going to be the best, and the rates will be high. The finance person you are taking to is another sales person!
3. Bank Financing- If you must take out a loan then your best option is always going to be your bank. A Home Equity Line of Credit or Home Equity Loan is going to be the best bang for your buck. However, if you don’t have equity in your home you can also look at an Unsecured Personal Loan to complete the project. Talk to your banker, they may have even more options available to you.
Ultimately, this is a big, time consuming, costly project for any home owner. If this is your first time handling a re-roof then talk to friends and family. Get recommendations of who to use. Here in Florida, in the middle of hurricane season prices are sky high. If you have the time to plan, then work around what is going on in your area. Not only are prices high right now, but roofers are backed up with work. Be sure if you are working on a time constraint that you ask how far out they are booking prior to having them come out for an estimate.