Answer These 6 Questions Before Considering a Home Improvement Loan

signing home improvement loan

Homeowners can apply and use home improvement loans for roof repairs and replacements. In order to determine if a loan is the right financing option for your roof project, answer a few basic questions before deciding on which loan to use.

What exactly is a home improvement loan?

Personal home improvement loans allow quick access to large sums of money for completing home projects that can’t wait. They come in varying amounts, from $2,000 - $40,000, and are paid back in fixed monthly payments over a span of 3 - 7 years. Notably, they don’t require much home equity for approval.

Personal home improvement loans are great options if you haven’t built up much home equity yet and don’t have time to save cash for the roofing project. 

Before you settle on a personal loan for your home improvement project, answer the following questions...

1. What is your current debt to income ratio?

A person’s debt to income ratio compares their overall debt (car payment, mortgage, student loans, etc.) to their overall income.

Lenders use this ratio to gauge how you can manage monthly payments and ultimately pay back the loan. The lower your ratio, the more loans you will qualify for.

For instance, a debt to income ratio of 45% or less will qualify people for a home equity loan, while a ratio below 36% will qualify people for refinancing options.

Find your debt to income ratio.

2. How much home equity do you have?

Home equity refers to the overall value of your home, minus the debt you owe on the property. Home equity increases as you make mortgage payments and as the house goes up in value.

The more home equity you’ve acquired allows you to use it as collateral to a lender, allowing you to access options with lower rates. If you’ve recently bought a home or don’t have much home equity, you can still qualify for unsecured options like personal loans.

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3. What is your credit score?

credit score report

Your credit score plays a big part in determining what type of loan you can qualify for.

A credit score is determined by a number of factors, including payment history, credit use, and current debt.

Lenders use a credit score to accurately determine your ability to pay back a loan. The higher your credit score, the better interest rates you’ll receive on a home improvement loan.


4. What is the nature of your employment?

Knowing you’ll have a regular paycheck throughout the roof project greatly reduces the stress involved with paying back the loan, not to mention your ability to qualify for one in the first place. Steady employment will ensure the loan is paid back in time without dipping into emergency savings or a retirement fund.

Pro Tip: If you’ve recently received a pay raise, bonus, or large tax refund, you can use your new beneficial economic circumstance to quickly pay back the loan.

5. What’s the project’s budget?

Outlining and sticking to a budget is a serious challenge to most homeowners, but it’s a crucial part of planning your roofing project.

Start by getting an accurate estimate of the roofing project—contract at least three different roofing contractors to get as accurate an estimate as possible. Starting without an estimate can easily cause homeowners to overspend. Once you determine how much money you’ll need, you can decide on the right home improvement loan for the project. 

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6. What’s the urgency of the project?

repairing roof

Different loans have varying time frames from the beginning of the application to receiving the money. If the roofing project is urgent and requires immediate action, certain loan options can transfer accessible funds days after the application.

If the project doesn’t need to be completed immediately, home improvement loans, like an FHA loan, may be a better choice because of their lower interest rates.

Learn more about how to successfully plan a roofing project:

Let's examine some of the advantages

If you’ve answered these questions honestly and determined a personal home improvement loan would be a solid financing choice for your roofing project, let’s break down some of their advantages.

The roofing project can begin almost immediately.
Personal loan lenders offer fast approvals. If your financial background is solid you can expect the loan provider to approve your policy quite quickly. Plus, the promise of a down payment will likely get you a lower bid for the project.

Personal loan rates are lower than credit card rates.
According to the Federal Reserve, credit card rates are about 2% higher than those on personal loans. While that may not seem like much, small percentages add up over time. 

Zero processing fees
Most roofing contractors charge a processing fee if you use a credit card. The fee ranges from 3% - 5%. Personal loans let you write a check straight from your checking account, bypassing the fee altogether. 

Affordable option without home equity
As we mentioned previously, personal home improvement loans allow new homeowners access to funds even though they don’t have much home equity. Because lower rated options that require home equity are off the table, personal loans are the next best option. 

Once you've settled on a financing option, it's time to find the right company for the job. Hometown Roofing Contractors helps customers identify qualified, licensed roofers. Customers can research contractors, request multiple quotes, and see how other homeowners review their experience.

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