If you can’t afford a new roof, borrowing money is an option for this costly home repair project.
Many homeowners qualify for home improvement loans because they have sufficient income, equity, and solid credit scores.
Some homeowners must seek help from the government but risk losing their homes later due to foreclosure.
Government-sponsored insurance guarantees protect lenders if borrowers default, enabling them to approve more applicants with weak qualifications.
In other words, the government helps you borrow more than you should. Proceed carefully to avoid future foreclosure!
Qualifying for Roof Replacement Loans
Homeowners should understand how private lenders evaluate roof replacement loan applications. With government-sponsored programs, passing three tests – DTI, LTV, and credit score – is easier.
However, when the underwriting is lenient, you are more likely to default than other debtors. Before applying, consider all other options to avoid falling into a trap.
Debt-to-Income
Private lenders calculate two debt-to-income (DTI) ratios measuring whether you can repay a government-backed loan. Low-income homeowners have poor ratings on DTI ratios and should consider other options.
Free government grants for roof repair benefit low-income families the most. A grant you don’t have to repay is better than a loan. Consider exploring these programs before borrowing money to avoid risking your house because you cannot afford the payments.
PITI Ratio
Government agencies allow a higher front-end DTI ratio (often called PITI) to approve more loans for marginal applicants. In other words, replacing your roof is likely more than you can afford.
| Numerator: Monthly Housing Costs | Denominator: Total Monthly Income |
|---|---|
| Principal | Employment |
| Interest | Housing Choice Vouchers |
| Taxes | Social Security Disability |
| Insurance | Child Support & Alimony |
TD Ratio
The government agency will stretch to a higher back-end DTI (often called Total Debt or TD) ratio to approve struggling applicants. In other words, your roof replacement could push you over a financial cliff.
The TD ratio considers all other monthly debt payments besides the PITI elements.
- Regular homeowner association and condominium assessments
- Long-term installment obligations (more than six months)
- Unsecured (personal) and secured (auto) loans
- Alimony and child support payments
- Deferred debt, regardless of the length
- Minimum payment on revolving accounts
- Credit cards
- Home equity line of credit
Loan-to-Value
Private lenders calculate the LTV ratio, which projects home equity if approved for roofing financing. The LTV ratio predicts behavior during a financial crisis, like unemployment or disability.
- LTV above 100%: The owner must short-sell the home and ruin credit
- LTV below 80%: The owner can sell the home and retain 20% in cash
Most government insurance programs allow borrowers LTV 97% +, leaving them vulnerable to financial consequences after job losses, illnesses, and accidents due to little or no home equity.
To avoid a high LTV catastrophe, consider finding a local charity that provides free labor for home repairs, such as a non-profit, church, or outreach ministry. This could significantly lower roofing project costs and keep you financially safe.
Credit Scores
Private lenders typically require a credit score of 660 or higher for a home improvement loan. However, government-sponsored insurance makes lower scores more acceptable.
Lower credit scores result in higher interest rates, which increase roof replacement costs and make monthly payments less affordable, increasing the likelihood of default.
To calculate your projected monthly payment, enter the principal amount based on your estimate from a roofing contractor, along with an interest rate corresponding to your credit score. The cost of the roofing project will depend on factors such as slope, square footage, and materials needed.
| Decking or Sheathing >Plywood >Oriented strand board >Rafters & trusses | Shingles >Starter units >Three-tab >Ridge caps |
| Reinforcement >Underlayment >Ice & Water Shield >Flashing | Extra Protection >Ventilation system >Fascia & soffits >Eaves & rakes >Gutter system |
Government Loans For Poor Credit Risks
Two connected government agencies collaborate to back home improvement loans for borrowers with weak credentials, including DTI above 45%, LTV above 80%, and credit score below 660.
- The US Department of Housing and Urban Development (HUD) oversees residential insurance programs protecting lenders.
- The Federal Housing Agency (FHA) establishes relaxed residential lending requirements, which can expose borrowers with weak credentials.
Private lenders can approve marginal applicants needing money for roof repair and replacement projects.
Title 1 Loans
The Federal Housing Authority (FHA) Title 1 program provides government-backed loans for homeowners to repair or replace roofs. The FHA insures lenders against losses, which enables them to approve homeowners with little equity more readily.
Apply for a government-backed loan under the FHA Title 1 program by contacting an FHA-approved lender. Contact the Department of Housing and Development (HUD) customer service center at (800) 767-7468 to obtain a listing in your state.
Qualified borrowers must meet specified criteria.
- Credit score minimum: determined by the lender
- Loan-to-Value (LTV) limits: no equity required
- Debt-to-Income (DTI) ratio: no more than 45%
You can use FHA-insured Title I loans for any improvements to make your home more livable. The mortgage insurance premiums are $1 per $100 of the amount advanced.
Energy-Efficient Mortgages
The Federal Housing Authority (FHA) Energy-Efficient Mortgage (EEM) is a possible government roof replacement loan that allows borrowers to stretch their standard qualifying ratios by two percentage points.
- Debt-to-Income (DTI) ratio
- Loan-to-Value (LTV) ratio
Apply for an EEM loan by contacting an FHA-approved lender in your area and arrange a home energy assessment. By financing cost-effective improvements, you can save money on utility bills over the expected life span of the improvements, making them pay for themselves.
Cool roof replacements alone may not meet energy-saving requirements, so you may need to include solar panel installation and other green improvements in your project.
Section 203(k)
FHA-backed Section 203(k) insurance enables private lenders to approve more loans for homeowners with weak borrowing credentials. Insurance premiums of 175 basis points (1.73%) may be included in the front-end (31%) and back-end (43%) DTI ratios.
| Credit Score | LTV |
|---|---|
| 500 to 580 | 90% |
| Above 580 | 96.5% |
Apply for Section 203(k) financing by contacting an FDA-approved lender. Borrowers can use the funding to replace roofing, gutters, and downspouts and make other improvements. Choose between two related programs.
- The Limited 203(k) program permits homeowners to finance up to $35,000 to repair, improve, or upgrade their primary residence.
- The Section 203(k) mortgage is a refinancing option that avoids short repayment terms and balloon payments.
Government Loans For Designated Groups
The government backs several home improvement loans designated groups can use for roof replacement. Warning labels should come with the programs supported by three federal agencies.
- Mortgage insurance guarantees protect lenders from default.
- Relaxed standards increase the likelihood of borrowers losing their homes
Rural Residents
The US Department of Agriculture (USDA) Section 504 program provides home repair loans directly to families without involving private lenders. The USDA lowers underwriting standards to approve more rural homeowners with meager incomes.
- LTV limit: 100%
- Total Debt Ratio: 46%
- Credit Score Minimum:
- At least 620
- Below 620 with other positive payment histories
Apply for a Section 504 home repair loan by contacting a local rural development office and completing several documents. Eligible borrowers must have a household income that does not exceed the very low limit by county.
Section 504 home repair loans offer advantages when funding roofing projects.
- Low 1% interest rate
- Principal amounts up to $40,000
- 20-year repayment terms
Military Veterans
The US Department of Veteran Affairs (VA) backs cash-out refinance loans military veterans can use to replace sagging roofs or repair leaks leading to water damage and mold.
The VA guarantees a portion of cash-out refinance loans for military veterans against loss, enabling private lenders to provide more favorable financing terms for roof replacement or repair.
- Lower interest rates
- Reduced closing costs
- Lower equity requirements
- Mortgage insurance waivers
Request a Certificate of Eligibility (COE) to get started. A COE verifies that you meet the initial qualifications for a VA-backed cash-out refinance loan based on your service history and duty status.
- Active service members: at least 90 continuous days
- Other requirements vary based on when you served
- Veterans
- National Guard
- Reserve members
Show the COE to your private lender before starting the final application process. You must also meet the finance company’s credit score and income requirements.
Native Americans
The Section 184 Home Loan Guarantee Program makes it easier for Native Americans to obtain affordable financing to repair or replace roofs. The US Department of Housing and Urban Development administers the benefit.
Apply for a Section 184 Loan by contacting an approved lender licensed in your state. The Section 184 guarantee assures the lender that its investment is secure, making it easier for the finance company to approve your application for affordable financing to repair or replace roofs.
Members of federally recognized tribes who are American Indians or Alaska Natives may qualify for multiple benefits under the Section 184 Home Loan Guarantee Program.
- Low home equity requirements
- 2.25% on amounts over $50,000
- 1.25% on amounts under $50,000
- Market-based interest rates (not credit score)
- Manual underwriting (not automated)
- Protection from predatory lending (no hidden fees)
